553060005454800055242000544530000000084129--03-022024Q2truehttp://fasb.org/us-gaap/2023#LongTermDebtAndCapitalLeaseObligationsCurrenthttp://fasb.org/us-gaap/2023#SellingGeneralAndAdministrativeExpensehttp://fasb.org/us-gaap/2023#SellingGeneralAndAdministrativeExpensehttp://fasb.org/us-gaap/2023#SellingGeneralAndAdministrativeExpensehttp://fasb.org/us-gaap/2023#SellingGeneralAndAdministrativeExpensehttp://fasb.org/us-gaap/2023#SellingGeneralAndAdministrativeExpensehttp://fasb.org/us-gaap/2023#SellingGeneralAndAdministrativeExpenseRite Aid Corporation ("Rite Aid," the "Company," "we," "us," and "our") is filing this Amendment No. 1 on Form 10-Q/A (this "Amendment" or "Form 10-Q/A") to our Quarterly Report on Form 10-Q for the quarter ended September 2, 2023, which was filed with the Securities and Exchange Commission (the "SEC") on October 17, 2023 (the "Original Form 10-Q") to make certain changes, as described below. Subsequent to the issuance of the Company's consolidated financial statements as of and for the fiscal year ended March 4, 2023, management evaluated the materiality of a misstatement related to the Company's historical accounting for closed store liabilities in accordance with changes in ASC 420, Exit or Disposal Cost Obligations. Based on their evaluation, management concluded the misstatement is not material to the Company's previously issued consolidated financial statements as of and for each of the three fiscal years ended March 4, 2023 and each of the interim and year-to-date periods then ended, (collectively the "previously issued financial statements"). However, due to the discovery of this error, we reevaluated the effectiveness of our internal control over financial reporting ("ICFR") as of March 4, 2023 and identified a material weakness in our ICFR. For a more detailed description of this material weakness, refer to Part I, Item 4,"Controls and Procedures." This Amendment therefore amends our assessment of our disclosure controls and procedures to indicate that they were not effective as of September 2, 2023 because of this material weakness. In conjunction with filing this Amendment, we determined it was appropriate to revise the previously issued financial statements and the related notes thereto to reflect the impact of the immaterial misstatement in the periods impacted. For additional information and a more detailed discussion, refer to Note 17 Revision of Previously Issued Consolidated Financial Statements. The revised consolidated financial statements for the fiscal years ended March 4, 2023, February 26, 2022 and February 27, 2021 can be found in Item 8 "Financial Statements and Supplementary Data" of the Company's Annual Report on Form 10-K/A, filed with the SEC on July 25, 2024 (the "Fiscal 2023 10-K/A"). The revised condensed consolidated financial statements for the quarterly periods ended June 3, 2023 and May 28, 2022 can be found in Item 1 "Financial Statements" of the Company's June 3, 2023 amended Form 10-Q/A, filed with the SEC on July 25, 2024 (the "Q1 2023 10-Q/A"). The revised condensed consolidated financial statements for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022 are provided in Item 1 of this amended Quarterly Report on Form 10-Q/A. This following Items of the Original Form 10-Q have been amended as set forth in this Form 10-Q/A: • Part I, Item 1. "Financial Statements" • Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results" • Part I, Item 4. "Controls and Procedures" • Part II, Item 1A. "Risk Factors." In addition, Part II, Item 6 "Exhibits" of the Original Form 10-Q also has been amended to include new certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The new certifications are attached to this Amendment as Exhibits 31.1, 31.2, and 32. The other Items of the Original Form 10-Q have not been amended and, accordingly, have not been repeated in this Amendment. The only changes to the Original Form 10-Q are related to the matters described above. Except as described above, this Amendment does not amend, update, or change any other item or disclosure in the Original Form 10-Q and does not purport to reflect any information or event subsequent to the filing thereof. As such, this Amendment speaks only as of the date the Original Form 10-Q was filed, and the Company has not undertaken herein to amend, update, or change any information contained in the Original Form 10-Q to give effect to any event following the date of filing of the Original Form 10-Q, other than as expressly indicated in this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Form 10-Q and any subsequent filing with the 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the quarterly period ended September 2, 2023

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

For the transition period from to

Commission File Number: 1-5742

RITE AID CORPORATION

(Exact name of registrant as specified in its charter)

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

PO Box 3165, Harrisburg, Pennsylvania (Address of principal executive offices)	17105 (Zip Code)

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

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

Not Applicable

Securities registered pursuant to Section 12(b) of the Act: None (*)

(*) On October 17, 2023, Rite Aid Corporation’s common stock, which previously traded on the New York Stock Exchange under the symbol

RAD, began trading exclusively on the over-the-counter market under the symbol RADCQ. On October 31, 2023, the New York Stock Exchange filed a

Form 25-NSE with the U.S. Securities and Exchange Commission and Rite Aid Corporation’s common stock was subsequently delisted from the New

York Stock Exchange. On January 29, 2024, Rite Aid Corporation’s common stock was deregistered under Section 12(b) of the Securities Exchange Act

of 1934, as amended.

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

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

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

Large Accelerated Filer ☐

Accelerated Filer ☒

Non-Accelerated Filer ☐

Smaller reporting company ☐

Emerging growth company ☐

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

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

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

Table of Contents

EXPLANATORY NOTE

Rite Aid Corporation (“Rite Aid,” the “Company,” “we,” “us,” and “our”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment" or “Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarter ended September 2, 2023, which was filed with the Securities and Exchange Commission (the “SEC”) on October 17, 2023 (the “Original Form 10-Q”) to make certain changes, as described below.

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

However, due to the discovery of this error, we reevaluated the effectiveness of our internal control over financial reporting (“ICFR”) as of March 4, 2023 and identified a material weakness in our ICFR. For a more detailed description of this material weakness, refer to Part I, Item 4,“Controls and Procedures.” This Amendment therefore amends our assessment of our disclosure controls and procedures to indicate that they were not effective as of September 2, 2023 because of this material weakness.

In conjunction with filing this Amendment, we determined it was appropriate to revise the previously issued financial statements and the related notes thereto to reflect the impact of the immaterial misstatement in the periods impacted. For additional information and a more detailed discussion, refer to Note 17 Revision of Previously Issued Consolidated Financial Statements. The revised consolidated financial statements for the fiscal years ended March 4, 2023, February 26, 2022 and February 27, 2021 can be found in Item 8 “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K/A, filed with the SEC on July 25, 2024 (the “Fiscal 2023 10-K/A”). The revised condensed consolidated financial statements for the quarterly periods ended June 3, 2023 and May 28, 2022 can be found in Item 1 “Financial Statements” of the Company’s June 3, 2023 amended Form 10-Q/A, filed with the SEC on July 25, 2024 (the “Q1 2023 10-Q/A”). The revised condensed consolidated financial statements for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022 are provided in Item 1 of this amended Quarterly Report on Form 10-Q/A.

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

●Part I, Item 1. “Financial Statements”

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

●Part I, Item 4. “Controls and Procedures”

●Part II, Item 1A. “Risk Factors.”

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

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

Table of Contents

RITE AID CORPORATION

TABLE OF CONTENTS



	Explanatory Note	2
	Cautionary Statement and Cautionary Note Regarding Forward-Looking Statements	4

	PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of September 2, 2023 and March 4, 2023	9
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended September 2, 2023 and August 27, 2022	10
	Condensed Consolidated Statements of Comprehensive Loss for the Thirteen Week Periods Ended September 2, 2023 and August 27, 2022	11
	Condensed Consolidated Statements of Operations for the Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022	12
	Condensed Consolidated Statements of Comprehensive Loss for the Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022	13
	Condensed Consolidated Statements of Stockholders’ Deficit for the Thirteen and Twenty-Six Week Periods Ended September 2, 2023	14
	Condensed Consolidated Statements of Stockholders’ Deficit for the Thirteen and Twenty-Six Week Periods Ended August 27, 2022	15
	Condensed Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022	16
	Notes to Condensed Consolidated Financial Statements	17
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results	58
ITEM 4.	Controls and Procedures	82

	PART II OTHER INFORMATION

ITEM 1A.	Risk Factors	83
ITEM 6.	Exhibits	88

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CAUTIONARY STATEMENT

On October 15, 2023, the Company and certain of its direct and indirect subsidiaries (collectively, the “Company Parties” or the “Debtors”) reached an agreement in principle (the “Restructuring Term Sheet”) with certain holders of the Company’s 7.500% Senior Secured Notes due 2025 (the “7.500% Secured Notes”) and 8.000% Senior Secured Notes due 2026 (the “8.000% Secured Notes”) and the indentures relating to the same (such holders, the “Consenting Noteholders”) on the terms of a comprehensive restructuring package to be implemented through the Chapter 11 Cases (as defined below). Capitalized terms used but not otherwise defined in the “Restructuring Transactions” sections of this Current Report on Form 10-Q have the meanings given to them in the Restructuring Term Sheet, which is filed as Exhibit 10.38 to this Form 10-Q and incorporated herein by reference. The Restructuring Term Sheet remains subject to definitive documentation, including the execution of a restructuring support agreement (the “Restructuring Support Agreement”). Under the Restructuring Term Sheet, the Consenting Noteholders have agreed, subject to certain terms and conditions more fully described herein, to support a financial and operational restructuring (the “Restructuring”) of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to a plan of reorganization (the “Plan”) filed in the cases commenced under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). In addition to the Restructuring Term Sheet, the Company and its direct and indirect subsidiaries entered into two senior secured debtor-in-possession financing arrangements (“DIP Financing”), pursuant to which certain lenders have agreed to provide the Company with various loan commitments in the aggregate principal amount of not less than $3.45 billion. The DIP Financing, and the credit facilities provided for thereunder, are further described in Note 10, Indebtedness and Credit Agreements, of this Form 10-Q.

To implement the Plan and secure approval of the DIP Financing, on October 15, 2023, the Company Parties filed voluntary petitions to commence the Chapter 11 Cases in the Bankruptcy Court (the “Petition Date”). Each Company Party will continue to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Rite Aid Corporation., et al., Case No. 23-18993 (MBK). The Debtors filed with the Bankruptcy Court certain motions seeking a variety of customary “first day” relief, including authority to pay employee wages and benefits, to pay vendors and suppliers for goods and services provided both before and after the Petition Date, and to continue honoring insurance and tax obligations as they come due. In addition, the Company filed with the Bankruptcy Court (a) a motion seeking approval of the DIP Financing in the form of the DIP Credit Agreements (as defined and described below), and (b) a motion seeking approval of certain procedures relating to the marketing and auction (if necessary) of all or some of the Company’s assets. At the Debtors’ “first day hearing” on October 16, 2023, the Bankruptcy Court approved all first day relief from the bench, pending entry of the revised forms of order. The Company filed the revised forms of order to the Bankruptcy Court immediately following the first day hearing, and the Company expects that the Bankruptcy Court will enter the orders approving the first day relief in the immediate term. Bankruptcy Court filings and information related to the Chapter 11 Cases are available at: https://restructuring.ra.kroll.com/RiteAid.

Substantial doubt about the Company’s ability to continue as a going concern exists in light of its Chapter 11 Cases. The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to, subject to the approval by the Bankruptcy Court, implement a comprehensive Restructuring, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity following the Restructuring to meet its obligations and operating needs.

Although management believes that the Restructuring of the Company through the Chapter 11 Cases will appropriately position the Company upon emergence, the commencement of these proceedings constituted an event of default (and an acceleration event) under certain of the Company’s debt agreements, enforcement of any remedies in respect of which is automatically stayed as a result of the Chapter 11 proceedings. There are a number of risks and uncertainties associated with the Company’s bankruptcy, including, among others that: (a) the Company’s Plan may never be confirmed or become effective, (b) the Restructuring Term Sheet may be terminated by one or more of the parties thereto, (c) the Bankruptcy Court may grant or deny motions in a manner that is adverse to the Company and its subsidiaries, and (d) the Chapter 11 Cases may be converted into cases under chapter 7 of the Bankruptcy Code.

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The transactions and Restructuring contemplated by the Restructuring Term Sheet are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated on the expected terms, if at all. As a result, the Company has concluded that management’s plans at this stage do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

Additionally, the Company cannot assure you that its creditors or stockholders will receive any recovery from the bankruptcy proceedings. As a result, the Company expects that its securities, including its currently outstanding shares of common stock, will be highly speculative during the pendency of the Chapter 11 Cases and will pose substantial risks and trading prices for its securities may bear little or no relationship to the actual recovery, if any, by holders of its securities in bankruptcy proceedings. Additionally, if the Company fails to regain compliance with the New York Stock Exchange’s continued listing standards, its common stock may be subject to delisting or trading in the over-the-counter (“OTC”) market. Accordingly, the Company urges extreme caution with respect to existing and future investments in its common stock.

On October 14, 2023, McKesson Corporation (“McKesson”) sent notice to the Company purporting to terminate the Eleventh Amendment to Supply Agreement by and between Rite Aid Corporation and McKesson Corporation, dated as of February 28, 2019 (the “McKesson Corporation Supply Agreement”) based on the occurrence of a termination event. The Company and McKesson have negotiated an agreement in principle to ensure no disruption to the Company’s business and operations, which agreement in principle includes a reservation of rights for both parties as to the purported termination. To the extent such agreement in principle is not executed, is not approved by the Bankruptcy Court, or is approved but subsequently terminates, the Company would vigorously contest such purported termination as null, void, and without effect. Subsequently, to the extent (a) such termination is not rescinded or (b) the Company does not prevail as to the invalidity of the termination event, the termination of the McKesson Corporation Supply Agreement may result in a material adverse impact on the Company’s business and operations.

CAUTIONARY NOTE 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:

●

our ability to fund our planned operations for the next twelve months and our ability to continue as a going concern;

●

the adverse impact of the Chapter 11 Cases on our business, financial condition, and results of operations;

●

our ability to successfully consummate the Restructuring and emerge from the Chapter 11 Cases, including by satisfying the conditions and milestones in the Restructuring Term Sheet;

●

our ability to improve our liquidity and long-term capital structure and to address our debt service obligations through the Restructuring;

●

our ability to make the required payments under the agreements governing our debt obligations;

●

our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Restructuring and the Chapter 11 Cases;

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●

the effects of the Restructuring and the Chapter 11 Cases on the Company and the interests of various constituents;

●

risks and uncertainties associated with the Restructuring, including our ability to receive approvals for debtor-in-possession financing, obtain confirmation of the Plan under the Chapter 11 Cases and successfully consummate the Restructuring;

●

our ability to receive any required approvals of the Plan and the responses of our securityholders, other stakeholders and customers, including those party to the Restructuring Term Sheet;

●

our ability to monetize certain assets;

●

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

●

subject to the successful outcome of the Restructuring, the nature, cost, impact and outcome of pending and future litigation, other legal or regulatory proceedings, or governmental investigations and actions, including those related to opioids, which could adversely affect our business, financial condition and results of operations, “usual and customary” pricing, government payor programs, business practices, or other matters;

●

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

●

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

●

general competitive, economic, industry, market, political (including healthcare reform) and regulatory conditions, including continued impacts of inflation or other pricing environment factors on our costs, liquidity and our ability to pass on price increases to our customers, including as a result of inflationary and deflationary pressures, a decline in consumer spending or deterioration in consumer financial position, whether due to inflation or other factors, as well as other factors specific to the markets in which we operate;

●

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

●

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

●

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

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●

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

●

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

●

the risk that we may need to take further impairment charges;

●

our ability to sell our Centers of Medicare and Medicaid Services (“CMS”) receivables, in whole or in part, and on reasonably available terms, which could negatively impact our liquidity 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;

●

the impact of stores currently being closed and future decisions to close additional stores and distribution centers or undertake additional refinancing activities, which could result in further charges;

●

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

●

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

●

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

●

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

●

our ability to manage the transition to a new chief executive officer and other management;

●

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

●

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

●

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

●

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

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●

our ability to maintain the listing of our common stock on the New York Stock Exchange (the “NYSE”), and the resulting impact of either (i) a delisting or (ii) remedies taken to prevent a delisting on our results of operations and financial condition; and

●

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

We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results” included herein and in our Fiscal 2023 10-K/A, and our Q1 2023 10-Q/A, as well as in “Part I – Item 1A. Risk Factors” of the Fiscal 2023 10-K/A, “Part II – Item 1A. Risk Factors” in our Q1 2023 10-Q/A and in “Part II – Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q/A. To the extent that COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the risk factors described herein and in our Fiscal 2023 10-K/A.

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)


	September 2,		March 4,
	2023		2023
ASSETS
Current assets:
Cash and cash equivalents	$	92,926	$	157,151
Accounts receivable, net		1,472,755		1,149,958
Inventories, net of LIFO reserve of $554,932 and $539,932		1,993,873		1,900,744
Prepaid expenses and other current assets		179,099		93,194
Total current assets		3,738,653		3,301,047
Property, plant and equipment, net		790,001		907,771
Operating lease right-of-use assets		2,239,043		2,497,206
Goodwill		90,436		507,936
Other intangibles, net		201,572		250,112
Deferred tax assets		12,368		12,368
Other assets		53,879		50,922
Total assets	$	7,125,952	$	7,527,362
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	3,773,356	$	6,332
Accounts payable		1,428,286		1,494,611
Accrued salaries, wages and other current liabilities		876,719		709,891
Current portion of operating lease liabilities		422,233		502,403
Total current liabilities		6,500,594		2,713,237
Long-term debt, less current maturities		—		2,925,258
Long-term operating lease liabilities		2,373,953		2,372,943
Lease financing obligations, less current maturities		11,718		12,580
Other noncurrent liabilities		147,869		97,577
Total liabilities		9,034,134		8,121,595
Commitments and contingencies		—		—
Stockholders’ deficit:
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and outstanding 56,486 and 56,629		56,486		56,629
Additional paid-in capital		5,920,361		5,917,964
Accumulated deficit		(7,870,177)		(6,553,974)
Accumulated other comprehensive loss		(14,852)		(14,852)
Total stockholders’ deficit		(1,908,182)		(594,233)
Total liabilities and stockholders’ deficit	$	7,125,952	$	7,527,362

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)


	Thirteen Week Period Ended
	September 2, 2023		August 27, 2022
Revenues	$	5,646,081	$	5,901,069
Costs and expenses:
Cost of revenues		4,550,485		4,746,574
Selling, general and administrative expenses		1,458,466		1,193,553
Facility exit and impairment charges		300,525		47,271
Goodwill and intangible asset impairment charges		295,490		252,200
Interest expense		72,658		52,533
Gain on debt modifications and retirements, net		—		(41,312)
Gain on sale of assets, net		(24,087)		(29,001)
		6,653,537		6,221,818
Loss before income taxes		(1,007,456)		(320,749)
Income tax expense		2,338		11,967
Net loss	$	(1,009,794)	$	(332,716)
Computation of loss attributable to common stockholders:
Net loss attributable to common stockholders — basic and diluted	$	(1,009,794)	$	(332,716)

Basic and diluted loss per share	$	(18.26)	$	(6.10)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)


	Thirteen Week Period Ended
	September 2, 2023		August 27, 2022
Net loss	$	(1,009,794)	$	(332,716)
Other comprehensive income:
Defined benefit pension plans:
Amortization of net actuarial losses included in net periodic pension cost, net of $0 and $0 income tax expense		—		—
Change in fair value of interest rate cap		—		—
Total other comprehensive income		—		—
Comprehensive loss	$	(1,009,794)	$	(332,716)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)


	Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022
Revenues	$	11,299,243	$	11,915,652
Costs and expenses:
Cost of revenues		9,025,121		9,564,428
Selling, general and administrative expenses		2,713,689		2,411,482
Facility exit and impairment charges		320,217		89,092
Goodwill and intangible asset impairment charges		446,990		252,200
Interest expense		137,878		100,652
Gain on debt modifications and retirements, net		—		(41,312)
Gain on sale of assets, net		(32,280)		(58,197)
		12,611,615		12,318,345
Loss before income taxes		(1,312,372)		(402,693)
Income tax expense		3,831		15,464
Net loss	$	(1,316,203)	$	(418,157)
Computation of loss attributable to common stockholders:
Net loss attributable to common stockholders — basic and diluted	$	(1,316,203)	$	(418,157)

Basic and diluted loss per share	$	(23.83)	$	(7.68)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)


	Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022
Net loss	$	(1,316,203)	$	(418,157)
Other comprehensive income:
Defined benefit pension plans:
Amortization of net actuarial losses included in net periodic pension cost, net of $0 and $0 income tax expense		—		—
Change in fair value of interest rate cap		—		—
Total other comprehensive income		—		—
Comprehensive loss	$	(1,316,203)	$	(418,157)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE MARCH 4, 2023	56,629	$	56,629	$	5,917,964	$	(6,553,974)	$	(14,852)	$	(594,233)
Net loss							(306,409)				(306,409)
Other comprehensive loss:
Comprehensive loss											(306,409)
Issuance of restricted stock	256		256		(256)						—
Shares issued under the performance-based incentive plans	44		44		(44)						—
Exchange of restricted shares for taxes	(18)		(18)		(28)						(46)
Cancellation of restricted stock	(203)		(203)		203						—
Amortization of restricted stock balance					1,201						1,201
Amortization of performance-based incentive plans					(109)						(109)
BALANCE JUNE 3, 2023	56,708	$	56,708	$	5,918,931	$	(6,860,383)	$	(14,852)	$	(899,596)
Net loss							(1,009,794)				(1,009,794)
Other comprehensive loss:
Comprehensive loss											(1,009,794)
Exchange of restricted shares for taxes	(113)		(113)		(68)						(181)
Cancellation of restricted stock	(109)		(109)		109						—
Amortization of restricted stock balance					1,261						1,261
Amortization of performance-based incentive plans					128						128
BALANCE SEPTEMBER 2, 2023	56,486	$	56,486	$	5,920,361	$	(7,870,177)	$	(14,852)	$	(1,908,182)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands, except per share amounts)

(unaudited)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
BALANCE FEBRUARY 26, 2022	55,752	$	55,752	$	5,910,299	$	(5,834,786)	$	(15,437)	$	115,828
Net loss							(85,441)				(85,441)
Other comprehensive loss:
Comprehensive loss											(85,441)
Issuance of restricted stock	61		61		(61)						—
Exchange of restricted shares for taxes	(63)		(63)		(490)						(553)
Cancellation of restricted stock	(127)		(127)		127						—
Amortization of restricted stock balance					3,324						3,324
Stock-based compensation expense					201						201
Amortization of performance-based incentive plans					(190)						(190)
BALANCE MAY 28, 2022	55,623		55,623		5,913,210		(5,920,227)		(15,437)		33,169
Net loss							(332,716)				(332,716)
Other comprehensive loss:
Comprehensive loss											(332,716)
Issuance of restricted stock	1,141		1,141		(1,141)						—
Exchange of restricted shares for taxes	(182)		(182)		(1,284)						(1,466)
Cancellation of restricted stock	(2)		(2)		2						—
Amortization of restricted stock balance					3,323						3,323
Stock-based compensation expense					111						111
Amortization of performance-based incentive plans					1,300						1,300
BALANCE AUGUST 27, 2022	56,580	$	56,580	$	5,915,521	$	(6,252,943)	$	(15,437)	$	(296,279)

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022
Operating activities:
Net loss	$	(1,316,203)	$	(418,157)
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization		134,924		138,637
Facility exit and impairment charges		320,217		89,092
Goodwill and intangible asset impairment charges		446,990		252,200
LIFO charge		15,000		10,121
Gain on sale of assets, net		(32,280)		(58,197)
Change in allowances for uncollectible accounts receivable		(19,959)		(1,671)
Stock-based compensation expense		2,149		8,069
Gain on debt modifications and retirements, net		—		(41,312)
Changes in deferred taxes		—		6,133
Changes in operating assets and liabilities:
Accounts receivable		(303,973)		(211,673)
Inventories		(108,129)		(77,405)
Accounts payable		(34,299)		(43,343)
Operating lease right-of-use assets and operating lease liabilities		(33,978)		(31,713)
Other assets		(88,771)		(10,870)
Other liabilities		205,151		(61,372)
Net cash used in operating activities		(813,161)		(451,461)
Investing activities:
Payments for property, plant and equipment		(76,869)		(122,243)
Intangible assets acquired		(15,217)		(15,356)
Proceeds from dispositions of assets and investments		29,125		41,003
Proceeds from sale-leaseback transactions		5,454		45,986
Net cash used in investing activities		(57,507)		(50,610)
Financing activities:
Net proceeds from revolver		837,000		677,000
Principal payments on long-term debt		(1,978)		(152,011)
Change in zero balance cash accounts		(27,939)		(12,931)
Financing fees paid for early debt redemption		(51)		(881)
Payments for taxes related to net share settlement of equity awards		(227)		(2,019)
Deferred financing costs paid		(362)		—
Net cash provided by financing activities		806,443		509,158
(Decrease) increase in cash and cash equivalents		(64,225)		7,087
Cash and cash equivalents, beginning of period		157,151		39,721
Cash and cash equivalents, end of period	$	92,926	$	46,808

See accompanying notes to condensed consolidated financial statements.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments which are of a recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the thirteen and twenty-six week periods ended September 2, 2023 are not necessarily indicative of the results to be expected for the full year, particularly as a result of the filing of the Chapter 11 Cases. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal 2023 10-K/A.

Going Concern

As of the date the accompanying unaudited condensed consolidated financial statements were issued (the “issuance date”), management evaluated the significance of the following adverse conditions in accordance with ASC 205-40, Going Concern.

As disclosed in Note 16, Subsequent Events, on October 15, 2023, the Company Parties reached an agreement in principle with the Consenting Noteholders on the terms of a financial operational restructuring, the material terms of which are set forth in the Restructuring Term Sheet. The Company filed a voluntary petition for reorganization under Chapter 11 (the “Chapter 11 filing” or “bankruptcy filing”) of the United States Bankruptcy Code in the District of New Jersey and expects to continue to manage its operations as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as a debtor-in-possession, the Company is authorized to continue to operate as an ongoing business but not to engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Elixir Insurance (“EI”) was excluded from the Chapter 11 filing due to regulatory factors.

The bankruptcy filing represents an adverse event that creates substantial uncertainty regarding the Company’s ability to recover its assets and satisfy its liabilities in the ordinary course of business. In this regard, while management believes the Company will be able to emerge from bankruptcy and continue to operate as a viable going concern, management can provide no assurance that: (a) the Company’s Plan may never be confirmed or become effective, (b) the Debtors’ voting creditors may reject the Plan embodying the restructuring transactions contemplated by the Restructuring Term Sheet, (c) the Bankruptcy Court may grant or deny motions in a manner that is adverse to the Company and its subsidiaries, and (d) the Chapter 11 Cases may be converted into cases under chapter 7 of the Bankruptcy Code.

The transactions contemplated by the Restructuring Term Sheet are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, management can provide no assurance that the transactions described therein will be consummated.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

While management believes the reorganization through the Chapter 11 proceedings will appropriately position the Company upon its re-emergence from bankruptcy, the commencement of these proceedings constituted an event of default (and an acceleration event) under certain of the Company’s debt agreements, for which enforcement of any remedies by the lenders have been automatically stayed as a result of the Chapter 11 proceedings. However, management can provide no assurance that the lenders will ultimately be able to exercise their remedies, which may include, among others, a cessation of the Company’s operations and liquidation of its assets. As a result of the foregoing acceleration event, all of the Company’s outstanding indebtedness, including indebtedness subject to cross-default provisions, has been classified as current debt in the accompanying unaudited condensed consolidated balance sheet of the Company as of September 2, 2023. See Note 10. Indebtedness and Credit Agreement.

These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to, subject to the approval by the Bankruptcy Court, implement a comprehensive restructuring, successfully emerge from the Chapter 11 and generate sufficient liquidity following the Restructuring to meet its obligations and operating needs as they become due. The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for twelve months following the issuance date. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Revenue Recognition

The following table disaggregates the Company’s revenue by major source in each segment for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022:


	September 2,		August 27,		September 2,		August 27,
	2023		2022		2023		2022
In thousands	(13 weeks)		(13 weeks)		(26 weeks)		(26 weeks)
Retail Pharmacy Segment:
Pharmacy sales	$	3,319,057	$	2,971,236	$	6,616,031	$	6,024,684
Front-end sales		1,124,017		1,231,590		2,291,363		2,492,796
Other revenue		27,853		28,965		55,862		59,667
Total Retail Pharmacy Segment		4,470,927		4,231,791		8,963,256		8,577,147
Pharmacy Services Segment		1,209,858		1,727,241		2,406,012		3,453,098
Intersegment elimination		(34,704)		(57,963)		(70,025)		(114,593)
Total revenue	$	5,646,081	$	5,901,069	$	11,299,243	$	11,915,652

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 year 2020. Beginning in December 2020, the Company granted temporary extensions of benefits to certain previous members that were eligible for a discount as of the end of each previous six month period such that those prior members were eligible to continue to receive that discount on purchases made through the subsequent six months 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 Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

eligible for program benefits also had the opportunity to earn additional discounts on purchases made through each six month period. A final extension was granted on December 31, 2021 through February 26, 2022 at which point all discounts were terminated.

A new loyalty program, Rite Aid Rewards, was initiated on February 27, 2022. Customers that enroll in the new program earn points for each dollar spent on front of store purchases as well as for eligible pharmacy prescriptions. Points can then be converted into a “Rite Aid Rewards” coupon that can be tendered as payment in a future purchase. Each point is worth $0.002. Customers must accumulate 1,000 points and create an online account in order to convert earned points to a “Rite Aid Rewards” coupon. Unused/unconverted points expire after 90 days. Unredeemed “Rite Aid Rewards” coupons expire 30 days after conversion from points earned.

Points earned pursuant to the Rite Aid Rewards program represent a performance obligation. The value of unredeemed Rite Aid Rewards points is deferred as a contract liability (included in other current liabilities). As members redeem points in the form of a Rite Aid Rewards coupon or when points or unredeemed Rite Aid Rewards coupons expire, the Retail Pharmacy Segment recognizes the redeemed/expired portion of the deferred contract liability into revenue. For the thirteen week period ended September 2, 2023, the Company recognized additional contract deferrals of $707 as a reduction of revenues. The Retail Pharmacy Segment had accrued contract liabilities of $2,560 and $2,030 as of September 2, 2023 and March 4, 2023, respectively.

Recently Adopted Accounting Pronouncements

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

2. Restructuring

Beginning in fiscal 2019, the Company initiated a series of plans designed to reorganize its executive management team, improve its cost structure, free up working capital, rebrand its retail pharmacy and pharmacy services business, and launch its Store of the Future format. Other strategic initiatives included the expansion of the Company’s digital business, replacing and updating the Company’s financial systems to improve efficiency, and closing unprofitable stores. In December 2022, the Company announced a new multi-year performance acceleration program, which allows it to fast-track initiatives that will improve sales, script volume and operating margins, and free up cash. This program has given the Company visibility into the profitability opportunities it can drive over the next three years by focusing on improvements and growth in its core businesses. These and future activities, including those designed to enhance the

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

Company’s liquidity and capital structure, are expected to provide future growth opportunities, expense efficiency benefits, as well as reduce its level of corporate leverage and are reflected into its plan of reorganization. The Company also engaged professional advisors to assist with the exploration of strategic alternatives, including the filing of the Chapter 11 Cases. In connection with the Chapter 11 Cases, the Company has incurred, and expects to continue to incur, significant professional fees and other costs. As part of its reorganization, the Company expects to implement a revised business plan to bolster core strengths, address operational challenges, reinforce liquidity, reduce leverage, optimize store footprint, and address litigation. As mentioned herein, there can be no assurance as to whether the Chapter 11 Cases will be successful, including the Company’s ability to achieve its operational, strategic, and financial goals.

For the thirteen week period ended September 2, 2023, the Company incurred total restructuring-related costs of $85,709, 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)	$	926	$	—	$	926
Professional and other fees relating to restructuring activities^(b)		82,484		2,299		84,783
Total restructuring-related costs	$	83,410	$	2,299	$	85,709

For the thirteen week period ended August 27, 2022, the Company incurred total restructuring-related costs of $12,805, 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)	$	913	$	—	$	913
Professional and other fees relating to restructuring activities^(c)		7,529		4,363		11,892
Total restructuring-related costs	$	8,442	$	4,363	$	12,805

For the twenty-six week period ended September 2, 2023, the Company incurred total restructuring-related costs of $163,839, 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)	$	1,366	$	—	$	1,366
Professional and other fees relating to restructuring activities^(b)		158,513		3,960		162,473
Total restructuring-related costs	$	159,879	$	3,960	$	163,839

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

For the twenty-six week period ended August 27, 2022, the Company incurred total restructuring-related costs of $35,451, 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)	$	12,201	$	616	$	12,817
Professional and other fees relating to restructuring activities^(c)		13,612		9,022		22,634
Total restructuring-related costs	$	25,813	$	9,638	$	35,451

A summary of restructuring-related liabilities associated with the programs noted above, which are included in accrued salaries, wages and other current liabilities, is as follows:


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

Balance as of March 4, 2023	$	7,658	$	42,154	$	49,812
Additions charged to expense		440		77,690		78,130
Cash payments		(2,738)		(33,962)		(36,700)
Balance as of June 3, 2023	$	5,360	$	85,882	$	91,242
Additions charged to expense		926		84,783		85,709
Cash payments		(2,052)		(106,782)		(108,834)
Balance as of September 2, 2023	$	4,234	$	63,883	$	68,117

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

(b)	– Professional and other fees include costs incurred in connection with the identification and implementation of initiatives, including its performance acceleration programs as well as costs incurred in connection with preparation for the Chapter 11 Cases.

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

3. Loss Per Share

Basic loss per share is computed by dividing loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share reflects the potential dilution that

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

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 loss of the Company, subject to anti-dilution limitations.


	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	September 2,		August 27,		September 2,		August 27,
	2023		2022		2023		2022
Basic and diluted loss per share:
Numerator:
Net loss attributable to common stockholders — basic and diluted	$	(1,009,794)	$	(332,716)	$	(1,316,203)	$	(418,157)
Denominator:
Basic and diluted weighted average shares		55,306		54,548		55,242		54,453

Basic and diluted loss per share	$	(18.26)	$	(6.10)	$	(23.83)	$	(7.68)

Due to their antidilutive effect, 16 and 539 potential shares related to stock options have been excluded from the computation of diluted loss per share for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022, respectively. Also, excluded from the computation of diluted loss per share for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022 are restricted shares of 1,074 and 1,811, respectively, which are included in shares outstanding.

4. Facility Exit and Impairment Charges

Facility exit and impairment charges consist of amounts as follows:


	Thirteen Week Period				Twenty-Six Week Period
	Ended				Ended
	September 2,			August 27,	September 2,		August 27,
	2023		2022		2023		2022
Impairment charges	$	290,694	$	34,738	$	302,432	$	69,774
Facility exit charges		9,831		12,533		17,785		19,318
	$	300,525	$	47,271	$	320,217	$	89,092

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.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

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.

As further discussed in Note 1, Basis of Presentation and Significant Accounting Policies, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of the unaudited consolidated financial statements. As a result of this triggering event, the Company performed an analysis of the carrying value of its long-lived assets using Level 3 inputs.

During the twenty-six week period ended September 2, 2023, long-lived assets with a carrying value of $620,106, primarily right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $317,674, resulting in an impairment charge of $302,432 of which $290,694 relates to the thirteen week period ended September 2, 2023. During the twenty-six week period ended August 27, 2022, long-lived assets with a carrying value of $86,534, primarily right-of-use assets in connection with stores or leased office spaces, were written down to their fair value of $16,760, resulting in an impairment charge of $69,774 of which $34,738 related to the thirteen week period ended August 27, 2022. 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.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

The following table presents fair values for those assets measured at fair value on a non-recurring basis at September 2, 2023 and August 27, 2022:


							Fair Values		Total Charges
							as of		Twenty-Six Week Period Ended
	Level 1		Level 2		Level 3		Impairment Date		September 2, 2023
Long-lived assets held for use	$	—	$	2,653	$	313,218	$	315,871	$	(301,417)
Long-lived assets held for sale	$	—	$	1,803	$	—	$	1,803	$	(1,015)
Total	$	—	$	4,456	$	313,218	$	317,674	$	(302,432)


							Fair Values		Total Charges
							as of		Twenty-Six Week Period Ended
	Level 1		Level 2		Level 3		Impairment Date		August 27, 2022
Long-lived assets held for use	$	—	$	11,645	$	—	$	11,645	$	(64,942)
Long-lived assets held for sale	$	—	$	5,115	$	—	$	5,115	$	(4,832)
Total	$	—	$	16,760	$	—	$	16,760	$	(69,774)

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

Facility Exit Charges

The Company assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in inventory liquidation charges, as well as impairment of assets at these locations. When a store or distribution center is closed, the Company records executory costs for leases, as well as other store or distribution center closing and liquidation costs, when incurred.

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

The following table reflects the accrued facility exit charges:


	Thirteen Week Period				Twenty-Six Week Period
	Ended				Ended
	September 2,		August 27,		September 2,		August 27,
	2023		2022		2023		2022
Balance—beginning of period	$	1,919	$	1,856	$	2,228	$	1,892
Provision for present value of executory costs for leases exited		—		—		155		—
Changes in assumptions and other adjustments		—		—		—		—
Interest accretion		—		—		—		—
Cash payments		(28)		(29)		(492)		(65)
Balance—end of period	$	1,891	$	1,827	$	1,891	$	1,827

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

5. Fair Value Measurements

The Company utilizes the three-level valuation hierarchy as described in Note 4, Facility Exit and Impairment Charges, for the recognition and disclosure of fair value measurements.

Financial instruments other than long-term indebtedness include cash and cash equivalents, accounts receivable and accounts payable. These instruments are recorded at book value, which we believe approximate their fair values due to their short term nature. In addition, as of September 2, 2023 and March 4, 2023, the Company has $4,189 and $7,457, respectively, of investments carried at amortized cost as these investments are being held to maturity, which are included as a component of prepaid expenses and other current assets. The Company believes the carrying value of these investments approximates their fair value.

The fair value for Secured Overnight Financing Rate (“SOFR”) based borrowings under the Company’s senior secured credit facility is estimated based on the quoted market price of the financial instrument which is considered Level 1 of the fair value hierarchy. The fair values of substantially all of the Company’s other long-term indebtedness are estimated based on quoted market prices of the financial instruments which are considered Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company’s total long-term indebtedness was $3,767,350 and $3,165,382 respectively, as of September 2, 2023. The carrying amount and estimated fair value of the Company's total long-term indebtedness was $2,925,258 and $2,368,328, respectively, as of March 4, 2023.

6. Income Taxes

The Company recorded income tax expense of $2,338 and $11,967 for the thirteen week periods ended September 2, 2023 and August 27, 2022, respectively. The Company recorded income tax expense of $3,831 and $15,464 for the twenty-six week periods ended September 2, 2023 and August 27, 2022, respectively. The effective tax rate for the thirteen week periods ended September 2, 2023 and August 27, 2022 was (0.2)% and (3.7)%, respectively. The effective tax rate for the twenty-six week periods ended September 2, 2023 and August 27, 2022 was (0.3)% and (3.8)%, respectively. The effective tax rate for the thirteen and twenty-six week periods ended September 2, 2023 was net of an adjustment of (25.3)% and (25.8)%, respectively, to adjust the valuation allowance against deferred tax assets. The effective tax rate for the thirteen and twenty-six week periods ended August 27, 2022 was net of an adjustment of 87.8% and 62.5%, respectively, to adjust the valuation allowance against deferred tax assets, primarily resulting from a Pennsylvania law change that reduced the corporate net income tax rate causing a reduction to the valuation allowance of $380,509.

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

The Company believes that it is reasonably possible that a decrease of up to $4,001 in unrecognized tax benefits related to state exposures may be necessary in the next twelve months; however, management does not expect the change to have a material impact on the results of operations or the financial position of the Company.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

The Company continues to maintain a valuation allowance against net deferred tax assets of $1,975,091 and $1,636,461, which relates to federal and state deferred tax assets that may not be realized based on the Company's future projections of taxable income at September 2, 2023 and March 4, 2023, respectively. As further discussed in Note 1, Basis of Presentation and Significant Accounting Policies, the Company concluded that there is substantial doubt about its ability to continue as a going concern. The Company considered this, as well as the impact of the Chapter 11 proceedings as part of its current evaluation of valuation allowance established for deferred tax assets for which future realization is uncertain. Additional discussion regarding the Restructuring on deferred tax assets can be found in Note 16, Subsequent Events.

7. Medicare Part D

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

EI is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, EI must file quarterly and annual reports with the National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under formulas established by certain states and must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe these limitations on dividends and distributions materially impact its financial position. EI is subject to minimum capital and surplus requirements in certain states. The minimum amount of capital and surplus required to satisfy regulatory requirements in these states is $7,333 as of June 30, 2023. EI was in excess of the minimum required amounts in these states as of September 2, 2023. EI is not a Debtor in the Chapter 11 Cases.

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 by CMS based on a detailed claims reconciliation that will occur in the following year; (ii) an estimate of amounts receivable from CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor; and (iii) estimates for claims that have been reported and are in the process of being paid or contested and for our estimate of claims that have been incurred but have not yet been reported.

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

Pursuant to the terms and conditions set forth in the August 2021 Receivable Purchase Agreement, the Company sold $271,829, a portion of its calendar year 2021 CMS receivable, for $258,116, of which $239,360 was received on August 12, 2021 and the remainder was received in fiscal 2023 upon final remittance from CMS. In connection therewith, the Company recognized a loss of $13,713, which is included as a component of loss (gain) on sale of assets, net during the thirteen week period ended August 28, 2021.

On August 12, 2021, concurrent with the August 2021 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “August 2021 Indemnity Agreement”), whereby the Company has agreed to

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

indemnify, reimburse, and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the August 2021 Indemnity Agreement. Based on its evaluation of the August 2021 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the August 2021 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the August 2021 Indemnity Agreement.

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

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

On January 24, 2022, concurrent with the January 2022 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “January 2022 Indemnity Agreement”), whereby the Company has agreed to indemnify, reimburse, and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the January 2022 Indemnity Agreement. Based on its evaluation of the January 2022 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the January 2022 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the January 2022 Indemnity Agreement.

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

Pursuant to the terms and conditions set forth in the October 2022 Receivable Purchase Agreement, the Company sold $195,487, a portion of its calendar 2022 CMS receivable, for $180,405, of which $166,917 was received on October 13, 2022. The remaining $13,488, which is included in accounts receivable, net as of September 2, 2023, is payable to the Company, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS. In connection therewith, the Company recognized a loss of $15,082, which is included as a component of (gain) loss on sale of assets, net during the thirteen week period ended November 26, 2022.

On October 13, 2022, concurrent with the October 2022 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “October 2022 Indemnity Agreement”), whereby the Company has agreed to indemnify, reimburse, and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the October 2022 Indemnity Agreement. Based on its evaluation of the October 2022 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the October 2022 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the October 2022 Indemnity Agreement.

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

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

Pursuant to the terms and conditions set forth in the February 2023 Receivable Purchase Agreement, the Company sold $278,390, a portion of its calendar 2022 CMS receivable, for $261,771, of which $242,562 was received on February 3, 2023. The remaining $19,209, which is included in accounts receivable, net as of September 2, 2023, is payable to the Company, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS. In connection therewith, the Company recognized a loss of $16,619, which is included as a component of (gain) loss on sale of assets, net during the fourteen-week period ended March 4, 2023.

On February 3, 2023, concurrent with the February 2023 Receivable Purchase Agreement, the Company entered into an indemnity agreement (the “February 2023 Indemnity Agreement”), whereby the Company has agreed to indemnify, reimburse and hold Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the occurrence of certain events as specified in the February 2023 Indemnity Agreement. Based on its evaluation of the February 2023 Indemnity Agreement, the Company has determined that it is highly unlikely that the events covered under the February 2023 Indemnity Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with the February 2023 Indemnity Agreement.

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

As of September 2, 2023 and March 4, 2023 accounts receivable, net included $32,697 due from the Purchaser, subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance for the respective calendar years from CMS.

As of September 2, 2023, and March 4, 2023, accounts receivable, net included $255,916 and $45,201 due from CMS.

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

On June 4, 2023, the Company decided to exit the Medicare Part D Individual Insurance market, effective January 1, 2024. As of September 2, 2023, Elixir Insurance operated in eleven markets, with approximately 274,000 Medicare Part D Individual members. The Company expects to service its exiting members in the 2023 plan year through December 31, 2023. Additionally, the Chapter 11 Cases does not impact its ability or intent to support EI through December 31, 2023.

8. Manufacturer Rebates Receivables

The Pharmacy Services Segment has manufacturer rebates receivables due directly from manufacturers and from our rebate aggregator of $411,549 and $357,699 included in accounts receivable, net of an allowance for uncollectible rebates of $13,280 and $8,680, as of September 2, 2023 and March 4, 2023, respectively.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

9. Goodwill and Other Intangible Assets

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

As further discussed in Note 16, Subsequent Events, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of the unaudited consolidated financial statements. As a result of overall lower current year projections, the Company concluded that a quantitative assessment was necessary and tested its goodwill and intangible assets for impairment.

During the thirteen week period ended September 2, 2023, the Company completed a qualitative and quantitative impairment assessment. The quantitative assessment concluded that the carrying amount of the Pharmacy Services Segment exceeded its fair value principally due to further erosion of the future cash flow projections for fiscal years ending after fiscal 2024 due to an inability to execute management’s business strategies for the 2024 selling season. The unfavorable results of the selling season became apparent during the thirteen week period ended September 2, 2023, which resulted in lower renewals of existing customers as well as less new business earned. This resulted in goodwill and the CMS license intangible incurring impairment charges of $266,000 and $29,490, respectively for the thirteen week period ended September 2, 2023. The qualitative and quantitative impairment assessment of the Retail Pharmacy Segment resulted in no adjustment to the carrying values as the fair value of its reporting unit exceeds its carrying amount.

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.

During the thirteen week period ended June 3, 2023, the Company recorded a goodwill impairment charge of $151,500. As of September 2, 2023 and March 4, 2023, accumulated impairment losses for the Pharmacy Services Segment was $1,592,412 and $1,174,912, respectively.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

Below is a summary of the changes in the carrying amount of goodwill by segment for the twenty-six week period ended September 2, 2023:


	Retail		Pharmacy
	Pharmacy		Services		Total
Balance, March 4, 2023		43,492		464,444		507,936
Goodwill impairment		—		(417,500)		(417,500)
Balance, September 2, 2023	$	43,492	$	46,944	$	90,436

The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. The following is a summary of the Company’s finite-lived and indefinite-lived intangible assets as of September 2, 2023 and March 4, 2023.


	September 2, 2023								March 4, 2023
							Remaining								Remaining
							Weighted								Weighted
	Gross						Average		Gross						Average
	Carrying		Accumulated				Amortization		Carrying		Accumulated				Amortization
	Amount		Amortization		Net		Period		Amount		Amortization		Net		Period
Non-compete agreements and other^(a)	$	203,632	$	(184,551)	$	19,081	3	years	$	201,919	$	(182,957)	$	18,962	3	years
Prescription files		1,030,619		(935,466)		95,153	5	years		1,029,665		(928,478)		101,187	5	years
Customer relationships^(a)		386,000		(313,062)		72,938	8	years		388,000		(306,139)		81,861	9	years
CMS license		57,500		(57,500)		—	0	years		57,500		(23,798)		33,702	4	years
Total finite	$	1,677,751	$	(1,490,579)		187,172			$	1,677,084	$	(1,441,372)	$	235,712
Trademarks		14,400		—		14,400	Indefinite			14,400		—		14,400	Indefinite
Total	$	1,692,151	$	(1,490,579)	$	201,572			$	1,691,484	$	(1,441,372)	$	250,112

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

Amortization expense for these intangible assets and liabilities was $16,590 and $33,723 for the thirteen and twenty-six week periods ended September 2, 2023, respectively. Amortization expense for these intangible assets and liabilities was $18,420 and $39,046 for the thirteen and twenty-six week periods ended August 27, 2022, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2024—$55,339; 2025—$44,505; 2026—$34,144; 2027—$27,154 and 2028—$19,674.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

10. Indebtedness and Credit Agreement

Following is a summary of indebtedness and lease financing obligations as of September 2, 2023 and March 4, 2023:


	September 2,		March 4,
	2023		2023
Secured Debt:
Senior secured revolving credit facility due August 2026 ($2,037,000 and $1,200,000 face value less unamortized debt issuance costs of $13,467 and $16,117)		2,023,533		1,183,883
FILO Term Loan due August 2026 ($400,000 face value less unamortized debt issuance costs of $1,782 and $2,090)		398,218		397,910
		2,421,751		1,581,793
Second Lien Secured Debt:
7.500% senior secured notes due July 2025 ($320,002 face value less unamortized debt issuance costs of $1,986 and $2,529)		318,016		317,473
8.000% senior secured notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $9,719 and $11,259)		840,199		838,659
		1,158,215		1,156,132
Unguaranteed Unsecured Debt:
7.70% notes due February 2027 ($185,691 face value less unamortized debt issuance costs of $347 and $398)		185,344		185,293
6.875% fixed-rate senior notes due December 2028 ($2,046 face value less unamortized debt issuance costs of $6 and $6)		2,040		2,040
		187,384		187,333
Lease financing obligations		17,724		18,912
Total debt		3,785,074		2,944,170
Current maturities of long-term debt and lease financing obligations		(3,773,356)		(6,332)
Long-term debt and lease financing obligations, less current maturities	$	11,718	$	2,937,838

Credit Facility

On December 20, 2018, the Company entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Prior Credit Agreement”; and the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Prior Amended Credit Agreement”), which provided for facilities consisting of a $2,700,000 senior secured asset-based revolving credit facility and a $450,000 “first-in, last-out” senior secured term loan facility, the proceeds of which were used in December 2018 to refinance its prior $2,700,000 existing credit agreement.

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

the Company’s debt maturity profile and provided additional liquidity. Borrowings under the Prior Senior Secured Revolving Credit Facility bore interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and 1.75%, in each case based upon the Average ABL Availability (as defined in the Prior Amended Credit Agreement). Borrowings under the Prior Senior Secured Term Loan bore interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%.

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

The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Existing Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Existing Credit Agreement). The Existing Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the Company’s existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof).

The Company’s borrowing capacity under the Existing Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. As of September 2, 2023, the Company had approximately $2,437,000 of borrowings outstanding under the Existing Facilities and had letters of credit outstanding under the Existing Senior Secured Revolving Credit Facility in a face amount of approximately $210,198, which resulted in remaining borrowing capacity under the Existing Senior Secured Revolving Credit Facility of $602,802. If at any time the total credit exposure outstanding under the Existing Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall.

The Existing Credit Agreement restricts the Company and all of its subsidiaries including the subsidiaries that guarantee its obligations under the Existing Facilities and the secured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding (not including cash located in store and lockbox deposit accounts and cash necessary to cover current liabilities). The Existing Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Existing Facilities or (ii) availability under the Existing Senior Secured Revolving Credit Facility is less than or equal to $283,250 for three consecutive business days or less than or equal to $206,000 on any day (a “cash sweep period”), the funds in the

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

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

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

The Existing Credit Agreement allows the Company to have outstanding, at any time, up to an aggregate principal amount of $1,500,000 in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Existing Facilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest maturity date of any Term Loan or Other Revolving Commitment (each as defined in the Existing Credit Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date). Subject to the limitations described in the immediately preceding sentence, the Existing Credit Agreement additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Existing Credit Agreement) is not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Existing Credit Agreement also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Existing Credit Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Existing Facilities are not in default and the Company maintains availability under its revolver of more than $375,950.

The Existing Credit Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Existing Senior Secured Revolving Credit Facility is less than $206,000 or (ii) on the third consecutive business day on which availability under the Existing Senior Secured Revolving Credit Facility is less than $257,500 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $257,500. As of September 2, 2023, the availability under the Existing Senior Secured Revolving Credit Facility was at a level that did not trigger the Existing Credit Agreement’s financial covenant. The Existing Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

The Existing Credit Agreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Company fails to make any required payment on debt having a principal amount in excess of $50,000 or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment, repurchase, redemption or defeasance of such debt.

As of September 2, 2023, the Company was in full compliance with the provisions and covenants associated with its debt agreements. The commencement of the Chapter 11 proceedings constituted an event of default that accelerated the Company’s obligations under the Unguaranteed Notes and the Secured Notes. Accordingly, all long-term debt was classified as current on the unaudited condensed consolidated balance sheet as of September 2, 2023. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 proceedings. See Note 16, Subsequent Events, for further information.

DIP ABL Credit Agreement

As further discussed in Note 16, Subsequent Events, subject to the approval of the Bankruptcy Court, the Company, as borrower (the “DIP ABL Borrower”), and certain of the Company’s direct and indirect debtor-subsidiaries, as guarantors (together with the DIP ABL Borrower, the “DIP ABL Loan Parties”), expect to enter into that certain debtor-in-possession credit agreement (the “DIP ABL Credit Agreement”) with the lenders from time to time party thereto (the “DIP ABL Lenders”) and Bank of America, N.A., as administrative agent and collateral agent (the “DIP ABL Agent”), on the terms and conditions set forth therein. Pursuant to the DIP ABL Credit Agreement, the DIP ABL Lenders have agreed, upon the terms and conditions set forth therein, to make available to the DIP ABL Borrower a superpriority senior secured debtor-in-possession asset-based credit facility in the aggregate principal amount of $3.25 billion, consisting of (x) a $2.85 billion revolving credit facility (the “DIP Revolving Facility”), and (y) a $400 million first-in last-out term loan facility (the “DIP FILO Facility,” and, together with the DIP Revolving Facility, the “DIP ABL Facilities”) in order to (a) repay all outstanding obligations arising under, or related to, the Existing Credit Agreement and the Existing Facilities, (b) fund the Chapter 11 Cases, (c) provide working capital for the DIP ABL Loan Parties during the pendency of the Chapter 11 Cases, and (d) make certain other payments as more fully provided in the Bankruptcy Court orders approving the DIP ABL Facilities, all in accordance with an Approved Budget (subject to the Permitted Variance) and as otherwise provided therein. The DIP ABL Loan Parties’ obligations under the DIP ABL Credit Agreement will be secured by liens on substantially all of the personal property of the DIP ABL Loan Parties, subject to certain exceptions.

The DIP ABL Facilities will mature on the date that is twelve months from the Closing Date. The interest rate applicable to loans under the DIP Revolving Facility is an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 3.25%. Additionally, the Company is required to pay a fee of 0.50% per annum on the daily unused amount of the commitments under the DIP Revolving Facility. The interest rate applicable to loans under the DIP FILO Facility is an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 5.25%, which margin is subject to downward adjustment to 4.75% upon the occurrence of certain paydown events, and a 1.00% upfront fee payable upon the Closing Date.

The DIP ABL Credit Agreement includes customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting the DIP ABL Borrower and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans, advances or

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

guarantees, engage in mergers, consolidations, sales of assets and acquisitions and pay dividends and distributions, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type. The DIP ABL Credit Agreement also includes representations and warranties, mandatory prepayments, affirmative covenants and events of default customary for financings of this type. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, the appointment of a trustee pursuant to chapter 11 of the Bankruptcy Code, and certain other events related to the impairment of the DIP ABL Lenders’ rights or liens granted under the DIP ABL Credit Agreement.

DIP Term Loan Credit Agreement

As further discussed in Note 16, Subsequent Events, subject to the approval of the Bankruptcy Court, the Company, as borrower (the “DIP Term Loan Borrower”), and certain of the Company’s direct and indirect debtor-subsidiaries, as guarantors (together with the DIP Term Loan Borrower, the “DIP Term Loan Parties”), expect to enter into that certain debtor-in-possession term loan agreement (the “DIP Term Loan Credit Agreement,” and, together with the DIP ABL Credit Agreement, the “DIP Credit Agreements”) with the lenders from time to time party thereto (the “DIP Term Loan Lenders”) and Bank of America, N.A., as administrative agent and collateral agent (the “DIP Term Loan Agent”), on the terms and conditions set forth therein. Pursuant to the DIP Term Loan Credit Agreement, the DIP Term Loan Lenders have agreed, upon the terms and conditions set forth therein, including the approval of the Bankruptcy Court, to make available to the DIP Term Loan Borrower a senior secured debtor-in-possession term loan credit facility in the aggregate principal amount of $200 million (the “DIP Term Loan Facility,” together with the DIP ABL Facility and the DIP FILO Facility, the “DIP Facilities”) in order to (a) fund the Chapter 11 Cases, (b) make certain other payments as more fully provided in the Bankruptcy Court orders approving the DIP Term Loan Facility, and (c) provide working capital for the DIP Term Loan Parties during the pendency of the Chapter 11 Cases, all in accordance with an Approved Budget (subject to the Permitted Variance) and as otherwise provided therein. The obligations under the DIP Term Loan Credit Agreement will be secured by liens on substantially all of the real and personal property of the DIP Term Loan Parties, subject to certain exceptions.

The DIP Term Loan Facility will mature on the date that is twelve months from the Closing Date. The interest rate applicable to loans under the DIP Term Loan Facility is an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 7.50%.

The DIP Term Loan Credit Agreement includes customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting the DIP Term Loan Borrower and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans, advances or guarantees, engage in mergers, consolidations, sales of assets and acquisitions and pay dividends and distributions, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type. The DIP Term Loan Credit Agreement also includes representations and warranties, mandatory prepayments, affirmative covenants and events of default customary for financings of this type. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, the appointment of a trustee pursuant to chapter 11 of the Bankruptcy Code, and certain other events related to the impairment of the DIP Term Loan Lenders’ rights or liens granted under the DIP Term Loan Credit Agreement.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

In connection with the Chapter 11 Cases, the Debtors filed the DIP Motion seeking Bankruptcy Court approval of their entry into and performance under the DIP Credit Agreements and use of cash collateral, as well as certain related relief [Docket No. 38]. The Debtors the Bankruptcy Court has approved the DIP Motion on an interim basis from the bench, pending entry of a revised interim Order, which the Debtors expect to be entered in the immediate term. The Debtors will seek the Bankruptcy Court’s approval of the DIP Motion on a final basis in the coming weeks.

Fiscal 2023 and 2024 Transactions

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

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

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

Maturities

The commencement of the Chapter 11 proceedings constituted an event of default that accelerated the Company’s obligations under the Unguaranteed Notes and the Secured Notes (without any action on the part of such noteholders). Accordingly, all long-term debt was classified as current on the unaudited condensed consolidated balance sheet as of September 2, 2023. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 proceedings. See Note 16, Subsequent Events, for further information.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

11. Leases

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

The following table is a summary of the Company’s components of net lease cost for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022:


	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022		September 2, 2023		August 27, 2022
Operating lease cost	$	148,896	$	157,956	$	301,568	$	317,801
Financing lease cost:
Amortization of right-of-use asset		775		863		1,594		1,672
Interest on long-term finance lease liabilities		454		503		921		1,004
Total finance lease costs	$	1,229	$	1,366	$	2,515	$	2,676
Short-term lease costs		2,086		585		1,310		1,042
Variable lease costs		44,646		43,652		90,879		86,297
Less: sublease income		(3,104)		(3,393)		(5,841)		(6,616)
Net lease cost	$	193,753	$	200,166	$	390,431	$	401,200

Supplemental cash flow information related to leases for the twenty-six week periods ended September 2, 2023 and August 27, 2022:


	Twenty-Six Week Period Ended
	September 2, 2023		August 27, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	330,492	$	350,177
Operating cash flows paid for interest portion of finance leases		921		1,004
Financing cash flows paid for principal portion of finance leases		1,969		1,940
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		163,569		155,710
Finance leases		—		—

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

Supplemental balance sheet information related to leases as of September 2, 2023 and March 4, 2023 (in thousands, except lease term and discount rate):


	September 2,			March 4,
	2023			2023
Operating leases:
Operating lease right-of-use asset	$	2,239,043		$	2,497,206

Short-term operating lease liabilities	$	422,233		$	502,403
Long-term operating lease liabilities		2,373,953			2,372,943
Total operating lease liabilities	$	2,796,186		$	2,875,346

Finance leases:
Property, plant and equipment, net	$	12,674		$	13,576

Current maturities of lease financing obligations	$	6,006		$	6,332
Lease financing obligations, less current maturities		11,718			12,580
Total finance lease liabilities	$	17,724		$	18,912
Weighted average remaining lease term
Operating leases		7.3			7.5
Finance leases		8.0			8.0

Weighted average discount rate
Operating leases		7.5	%		6.5	%
Finance leases		10.5	%		9.0	%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of September 2, 2023:


	September 2, 2023
	Finance		Operating
Fiscal year	Leases		Leases⁽¹⁾		Total
2024 (remaining twenty-six weeks)	$	5,301	$	335,247	$	340,548
2025		5,048		622,993		628,041
2026		1,883		500,523		502,406
2027		1,500		472,118		473,618
2028		1,500		399,881		401,381
Thereafter		10,174		1,280,351		1,290,525
Total lease payments		25,406		3,611,113		3,636,519
Less: imputed interest		(7,682)		(814,927)		(822,609)
Total lease liabilities	$	17,724	$	2,796,186	$	2,813,910

(1)	– Future operating lease payments have not been reduced by minimum sublease rentals of $23 million due in the future under noncancelable leases.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

During the thirteen and twenty-six week periods ended September 2, 2023, the Company sold three owned and operated stores to independent third parties. Net proceeds from the sales were $5,454 for the thirteen and twenty-six week periods ended September 2, 2023. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over a minimum lease term of 15 years. The Company accounted for these leases as operating lease right-of-use assets and corresponding operating lease liabilities in accordance with the Lease Standard. The transactions resulted in a loss of $706 which is included in the gain on sale of assets, net for the thirteen and twenty-six week periods ended September 2, 2023

During the thirteen and twenty-six week periods ended August 27, 2022, the Company sold three owned and operated properties, including the Pontiac, MI and Liverpool, NY distribution centers and one retail store to independent third parties. Net proceeds from the sales were $45,986 for the thirteen and twenty-six week periods ended August 27, 2022. 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 for the retail store and over a minimum lease term of three years for the distribution centers. 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 $23,313 which is included in the gain on sale of assets, net for the thirteen and twenty-six week periods ended August 27, 2022.

Additionally, certain of the Company’s lease obligations and other outstanding contracts include events of default, cross default or cross acceleration provisions, which could result in rights to accelerate or terminate obligations, including upon the commencement of the Chapter 11 proceedings. However, the exercise or enforcement of any remedies have been automatically stayed as a result of such proceedings.

12. Retirement Plans

Net periodic pension expense (income) for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022, for the Company’s defined benefit plan includes the following components:


	Defined Benefit				Defined Benefit
	Pension Plan				Pension Plan
	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	September 2,		August 27,		September 2,		August 27,
	2023		2022		2023		2022
Service cost	$	73	$	107	$	146	$	214
Interest cost		1,581		1,263		3,162		2,527
Expected return on plan assets		(1,474)		(1,402)		(2,948)		(2,804)
Net periodic pension expense (income)	$	180	$	(32)	$	360	$	(63)

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

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

13. Segment Reporting

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

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

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

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


	Retail		Pharmacy
	Pharmacy		Services		Eliminations⁽¹⁾		Consolidated
September 2, 2023:
Total Assets	$	5,530,289	$	1,605,604	$	(9,941)	$	7,125,952
Goodwill		43,492		46,944		—		90,436
March 4, 2023:
Total Assets	$	5,487,845	$	2,049,107	$	(9,590)	$	7,527,362
Goodwill		43,492		464,444		—		507,936

(1)

As of September 2, 2023 and March 4, 2023, intersegment eliminations include intersegment accounts receivable of $9,941 and $9,590, respectively, that represents amounts owed from the Pharmacy Services Segment to the Retail Pharmacy Segment that are created when Pharmacy Services Segment customers use Retail Pharmacy Segment stores to purchase covered products.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended September 2, 2023 and August 27, 2022

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

(unaudited)

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements for the thirteen and twenty-six week periods ended September 2, 2023 and August 27, 2022:


	Retail		Pharmacy		Intersegment
	Pharmacy		Services		Eliminations⁽¹⁾		Consolidated
Thirteen Week Period Ended
September 2, 2023:
Revenues	$	4,470,927	$	1,209,858	$	(34,704)	$	5,646,081
Gross Profit		978,602		116,994		—		1,095,596
Adjusted EBITDA⁽²⁾		(26,477)		43,186		—		16,709
Depreciation and amortization		56,985		12,044		—		69,029
LIFO charge		7,500		—		—		7,500
Stock-based compensation expense		773		295		—		1,068
Additions to property and equipment and intangible assets		37,894		6,689		—		44,583
August 27, 2022:
Revenues	$	4,231,791	$	1,727,241	$	(57,963)	$	5,901,069
Gross Profit		1,043,036		111,459		—		1,154,495
Adjusted EBITDA⁽²⁾		31,484		47,065		—		78,549
Depreciation and amortization		56,679		11,885		—		68,564
LIFO charge		10,121		—		—		10,121
Stock-based compensation expense

RITE AID CORP 10-Q/A