RITE AID CORPORATION

	Cautionary Statement Regarding Forward-Looking Statements	3

PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017~~3, 2018	5
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~	6
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Thirteen Week Periods Ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~	7
	Condensed Consolidated Statements of Operations for the ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~	8
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~	9
	Condensed Consolidated Statements of Cash Flows for the ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~	10
	Notes to Condensed Consolidated Financial Statements	11
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3937
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5250
ITEM 4.	Controls and Procedures	53
		50
PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	5351
ITEM 1A.	Risk Factors	5351
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5351
ITEM 3.	Defaults Upon Senior Securities	5551
ITEM 4.	Mine Safety Disclosures	5551
ITEM 5.	Other Information	5551
ITEM 6.	Exhibits	5551

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

· our high level of indebtedness;

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

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

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

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

· the inability to complete the ~~remaining subsequent closings~~sale of distribution centers to Walgreens Boots Alliance, Inc. (“WBA”), receive the ~~Sale (as defined in Note 3 below)~~related proceeds and recognize the corresponding expected gain due to the failure to satisfy the minimal remaining conditions applicable only to the ~~stores~~distribution centers being transferred at such ~~subsequent closing~~distribution center closing;

· the risk that the terminated merger (the “Merger”) with Albertsons Companies, Inc. (“Albertsons”) could have an adverse effect on our ability to retain customers and ~~other risks related to obtaining the requisite consents to the remaining subsequent closings of the Sale;~~retain and hire key personnel and maintain relationships with our suppliers and customers and on our operating results and businesses generally;

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

· the risk that we will not be able to meet our ~~stock price may decline significantly if the remaining subsequent closings of the Sale are not completed;~~obligations under our Transition Services Agreement (“TSA”) with WBA, which could expose us to significant financial penalties;

· the risk that we cannot reduce our ~~ability~~selling, general and administrative expenses enough to ~~refinance our indebtedness on terms favorable to us;~~offset lost revenue from the TSA agreement as the amount of stores serviced under the agreement decreases;

· the risk that there may be changes to our strategy indue to the ~~event that~~termination of the Merger, or if the remaining ~~subsequent closings~~distribution center closing of the Sale do not close, which may include delaying or reducing capital or other expenditures, selling assets or other operations, closing underperforming stores, attempting to restructure or refinance our debt, seeking additional capital or incurring other costs associated with restructuring our ~~business;~~business, any of which could have an impact on our stock price;

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

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

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

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

· our ability to hire and retain qualified personnel;

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

· our ability to manage expenses and working ~~capital;~~capital and our ability to achieve our drug purchasing initiatives;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein and in our Annual Report on Form 10-K for the fiscal year ended March ~~4, 2017~~3, 2018 (the “Fiscal ~~2017~~2018 10-K”), which we filed with the SEC on ~~May 3, 2017,~~April 26, 2018, and our Quarterly Report on Form 10-Q for the thirteen weeks ended June ~~3, 2017~~2, 2018 (the “First Quarter ~~2018~~2019 10-Q”) which we filed on July 6, ~~2017, and our Quarterly Report on Form 10-Q for the thirteen weeks ended September 2, 2017 (the “Second Quarter~~ 2018, ~~10-Q”) which we filed on October 5, 2017,~~ as well as in the “Risk Factors” section of the Fiscal ~~2017~~2018 10-K. These documents are available on the SEC’s website at www.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

	December 2, 2017			March 4, 2017			September 1, 2018			March 3, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	169,800		$	245,410		$	132,468		$	447,334
Accounts receivable, net	1,796,919			1,771,126			2,039,605			1,869,100
Inventories, net of LIFO reserve of $627,718 and $607,326	1,853,886			1,789,541
Inventories, net of LIFO reserve of $594,413 and $581,090							1,848,287			1,799,539
Prepaid expenses and other current assets	240,712			211,541			169,313			181,181
Current assets held for sale	1,868,128			1,047,670			181,989			438,137
Total current assets	5,929,445			5,065,288			4,371,662			4,735,291
Property, plant and equipment, net	1,479,214			1,526,462			1,350,735			1,431,246
Goodwill	1,682,847			1,682,847			1,108,135			1,421,120
Other intangibles, net	618,274			715,406			480,520			590,443
Deferred tax assets	1,419,544			1,505,564			635,127			594,019
Other assets	211,290			215,917			219,489			217,208
Noncurrent assets held for sale	—			882,268
Total assets	$	11,340,614		$	11,593,752		$	8,165,668		$	8,989,327
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	20,354		$	17,709		$	18,668		$	20,761
Accounts payable	1,789,456			1,613,909			1,733,989			1,651,363
Accrued salaries, wages and other current liabilities	1,258,586			1,340,947			938,940			1,231,736
Current liabilities held for sale	3,837,519			32,683			—			560,205
Total current liabilities	6,905,915			3,005,248			2,691,597			3,464,065
Long-term debt, less current maturities	2,985,700			3,235,888			3,481,741			3,340,099
Lease financing obligations, less current maturities	31,654			37,204			26,537			30,775
Other noncurrent liabilities	592,201			643,950			509,843			553,378
Noncurrent liabilities held for sale	—			4,057,392
Total liabilities	10,515,470			10,979,682			6,709,718			7,388,317
Commitments and contingencies	—			—			—			—
Stockholders’ equity:
Common stock, par value $1 per share; 1,500,000 shares authorized; shares issued and outstanding 1,067,887 and 1,053,690	1,067,887			1,053,690
Common stock, par value $1 per share; 1,500,000 shares authorized; shares issued and outstanding 1,066,050 and 1,067,318							1,066,050			1,067,318
Additional paid-in capital	4,846,213			4,839,854			4,859,462			4,850,712
Accumulated deficit	(5,048,182		)	(5,237,157		)	(4,435,741		)	(4,282,471		)
Accumulated other comprehensive loss	(40,774		)	(42,317		)	(33,821		)	(34,549		)
Total stockholders’ equity	825,144			614,070			1,455,950			1,601,010
Total liabilities and stockholders’ equity	$	11,340,614		$	11,593,752		$	8,165,668		$	8,989,327

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Thirteen Week Period Ended						Thirteen Week Period Ended
	December 2, 2017			November 26, 2016			September 1, 2018			September 2, 2017
Revenues	$	5,353,170		$	5,669,111		$	5,421,362		$	5,345,011
Costs and expenses:
Cost of revenues	4,166,447			4,424,259			4,260,211			4,183,338
Selling, general and administrative expenses	1,166,514			1,168,646			1,153,991			1,141,844
Lease termination and impairment charges	3,939			7,199			39,609			3,113
Goodwill and intangible asset impairment charges							375,190			—
Interest expense	50,308			50,304			56,233			50,857
Loss (gain) on sale of assets, net	205			(225		)
Walgreens Boots Alliance merger termination fee							—			(325,000		)
Gain on sale of assets, net							(4,965		)	(14,951		)
	5,387,413			5,650,183			5,880,269			5,039,201
Loss (income) from continuing operations before income taxes	(34,243		)	18,928
Income tax benefit	(16,061		)	(4,682		)
(Loss) income from continuing operations before income taxes							(458,907		)	305,810
Income tax (benefit) expense							(106,559		)	117,450
Net (loss) income from continuing operations	(18,182		)	23,610			(352,348		)	188,360
Net income (loss) from discontinued operations, net of tax	99,213			(8,600		)
Net income	$	81,031		$	15,010
Net loss from discontinued operations, net of tax							(6,792		)	(17,644		)
Net (loss) income							$	(359,140	)	$	170,716
Computation of (loss) income attributable to common stockholders:
(Loss) income from continuing operations attributable to common stockholders—basic and diluted	$	(18,182	)	$	23,610		$	(352,348	)	$	188,360
Income (loss) from discontinued operations attributable to common stockholders—basic and diluted	99,213			(8,600		)
Income attributable to common stockholders—basic and diluted	$	81,031		$	15,010
Loss from discontinued operations attributable to common stockholders—basic and diluted							(6,792		)	(17,644		)
(Loss) income attributable to common stockholders—basic and diluted							$	(359,140	)	$	170,716

Basic (loss) income per share:
Basic and diluted (loss) income per share:
Continuing operations	$	(0.02	)	$	0.02		$	(0.33	)	$	0.18
Discontinued operations	$	0.10		$	(0.01	)	$	(0.01	)	$	(0.02	)
Net basic income per share	$	0.08		$	0.01

Diluted (loss) income per share:
Continuing operations	$	(0.02	)	$	0.02
Discontinued operations	$	0.10		$	(0.01	)
Net diluted income per share	$	0.08		$	0.01
Net basic and diluted (loss) income per share							$	(0.34	)	$	0.16

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(unaudited)

	Thirteen Week Period Ended				Thirteen Week Period Ended
	December 2, 2017		November 26, 2016		September 1, 2018			September 2, 2017
Net income	$	81,031	$	15,010
Net (loss) income					$	(359,140	)	$	170,716
Other comprehensive income:
Defined benefit pension plans:
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $342 and $451 tax expense	514		681
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $144 and $342 tax expense					364			515
Total other comprehensive income	514		681		364			515
Comprehensive income	$	81,545	$	15,691
Comprehensive (loss) income					$	(358,776	)	$	171,231

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Thirty-Nine Week Period Ended						Twenty-Six Week Period Ended
	December 2, 2017			November 26, 2016			September 1, 2018			September 2, 2017
Revenues	$	16,134,704		$	17,024,154		$	10,809,852		$	10,781,534
Costs and expenses:
Cost of revenues	12,624,365			13,308,505			8,479,952			8,457,918
Selling, general and administrative expenses	3,469,298			3,523,850			2,306,618			2,302,784
Lease termination and impairment charges	11,090			20,203			49,468			7,151
Goodwill and intangible asset impairment charges							375,190			—
Interest expense	152,165			146,674			119,025			101,857
Loss on debt retirements, net							554			—
Walgreens Boots Alliance merger termination fee	(325,000		)	—			—			(325,000		)
Gain on sale of assets, net	(20,623		)	(388		)	(10,824		)	(20,828		)
	15,911,295			16,998,844			11,319,983			10,523,882
Income from continuing operations before income taxes	223,409			25,310
Income tax expense (benefit)	89,268			(3,824		)
Net income from continuing operations	134,141			29,134
(Loss) income from continuing operations before income taxes							(510,131		)	257,652
Income tax (benefit) expense							(116,056		)	105,329
Net (loss) income from continuing operations							(394,075		)	152,323
Net income (loss) from discontinued operations, net of tax	42,257			(3,939		)	249,351			(56,956		)
Net income	$	176,398		$	25,195
Computation of income (loss) attributable to common stockholders:
Income from continuing operations attributable to common stockholders—basic and diluted	$	134,141		$	29,134
Net (loss) income							$	(144,724	)	$	95,367
Computation of (loss) income attributable to common stockholders:
(Loss) income from continuing operations attributable to common stockholders—basic and diluted							$	(394,075	)	$	152,323
Income (loss) from discontinued operations attributable to common stockholders—basic and diluted	42,257			(3,939		)	249,351			(56,956		)
Income attributable to common stockholders—basic and diluted	$	176,398		$	25,195
(Loss) income attributable to common stockholders—basic and diluted							$	(144,724	)	$	95,367

Basic income (loss) per share:
Basic and diluted (loss) income per share:
Continuing operations	$	0.13		$	0.03		$	(0.37	)	$	0.14
Discontinued operations	$	0.04		$	(0.01	)	$	0.23		$	(0.05	)
Net basic income per share	$	0.17		$	0.02

Diluted income (loss) per share:
Continuing operations	$	0.13		$	0.03
Discontinued operations	$	0.04		$	(0.01	)
Net diluted income per share	$	0.17		$	0.02
Net basic and diluted (loss) income per share							$	(0.14	)	$	0.09

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(unaudited)

	Thirty-Nine Week Period Ended				Twenty-Six Week Period Ended
	December 2, 2017		November 26, 2016		September 1, 2018			September 2, 2017
Net income	$	176,398	$	25,195
Net (loss) income					$	(144,724	)	$	95,367
Other comprehensive income:
Defined benefit pension plans:
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $1,026 and $1,353 tax expense	1,543		2,043
Amortization of prior service cost, net transition obligation and net actuarial losses included in net periodic pension cost, net of $288 and $684 tax expense					728			1,029
Total other comprehensive income	1,543		2,043		728			1,029
Comprehensive income	$	177,941	$	27,238
Comprehensive (loss) income					$	(143,996	)	$	96,396

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Thirty-Nine Week Period Ended						Twenty-Six Week Period Ended
	December 2, 2017			November 26, 2016			September 1, 2018			September 2, 2017
Operating activities:
Net income	$	176,398		$	25,195
Net (loss) income							$	(144,724	)	$	95,367
Net income (loss) from discontinued operations, net of tax	42,257			(3,939		)	249,351			(56,956		)
Net income from continuing operations	$	134,141		$	29,134
Adjustments to reconcile to net cash provided by operating activities of continuing operations:
Net (loss) income from continuing operations							$	(394,075	)	$	152,323
Adjustments to reconcile to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization	292,448			304,460			184,272			196,684
Lease termination and impairment charges	11,090			20,203			49,468			7,151
Goodwill and intangible asset impairment charges							375,190			—
LIFO charge	20,393			25,266			13,324			13,609
Gain on sale of assets, net	(20,623		)	(388		)	(10,824		)	(20,828		)
Stock-based compensation expense	22,550			36,766			10,246			15,362
Loss on debt retirements, net							554			—
Changes in deferred taxes	98,597			6,165			(124,807		)	64,850
Excess tax benefit on stock options and restricted stock	—			(3,809		)
Changes in operating assets and liabilities:
Accounts receivable	(19,865		)	(81,520		)	(323,724		)	(88,748		)
Inventories	(84,731		)	(128,568		)	(31,650		)	(27,454		)
Accounts payable	118,941			178,266			207,943			59,271
Other assets and liabilities, net	(148,491		)	(212,727		)
Net cash provided by operating activities of continuing operations	424,450			173,248
Other assets							(11,232		)	(14,262		)
Other liabilities							(245,587		)	(62,485		)
Net cash (used in) provided by operating activities of continuing operations							(300,902		)	295,473
Investing activities:
Payments for property, plant and equipment	(140,816		)	(197,723		)	(92,565		)	(79,116		)
Intangible assets acquired	(20,201		)	(35,986		)	(20,519		)	(9,679		)
Proceeds from insured loss	3,627			—			—			3,627
Proceeds from dispositions of assets and investments	19,254			10,217			15,729			17,407
Proceeds from sale-leaseback transactions							2,587			—
Net cash used in investing activities of continuing operations	(138,136		)	(223,492		)	(94,768		)	(67,761		)
Financing activities:
Net (payments to) proceeds from revolver	(264,080		)	280,000
Net proceeds from (payments to) revolver							1,335,000			(190,000		)
Principal payments on long-term debt	(7,292		)	(12,728		)	(433,746		)	(4,386		)
Change in zero balance cash accounts	27,594			30,685			(17,101		)	10,189
Net proceeds from issuance of common stock	4,416			4,412			1,302			215
Excess tax benefit on stock options and restricted stock	—			3,809
Payments for taxes related to net share settlement of equity awards	(4,103		)	(6,254		)	(2,244		)	(4,071		)
Net cash (used in) provided by financing activities of continuing operations	(243,465		)	299,924
Financing fees paid for early debt redemption							(13		)	—
Net cash provided by (used in) financing activities of continuing operations							883,198			(188,053		)
Cash flows from discontinued operations:
Operating activities of discontinued operations	(62,294		)	(1,541		)	(62,003		)	2,358
Investing activities of discontinued operations	189,175			(148,884		)	603,402			(44,739		)
Financing activities of discontinued operations	(245,340		)	(3,698		)	(1,343,793		)	(3,710		)
Net cash used in discontinued operations	(118,459		)	(154,123		)	(802,394		)	(46,091		)
(Decrease) increase in cash and cash equivalents	(75,610		)	95,557
Decrease in cash and cash equivalents							(314,866		)	(6,432		)
Cash and cash equivalents, beginning of period	245,410			124,471			447,334			245,410
Cash and cash equivalents, end of period	$	169,800		$	220,028		$	132,468		$	238,978

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and ~~Thirty-Nine~~Twenty-Six Week Periods Ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~

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

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments which are of a recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~September 1, 2018 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal ~~2017~~2018 10-K.

The discussion and presentation of the operating and financial results of our business segments have been impacted by the following event.

~~On November 27, 2017,~~Pursuant to the ~~Company announced that it had completed~~terms and subject to the ~~pilot closing and first subsequent closing under~~conditions set forth in the ~~previously announced~~ Amended and Restated Asset Purchase Agreement (the “Amended and Restated Asset Purchase Agreement” ~~or the “Sale”~~), dated as of September 18, 2017, by and among ~~the Company,~~Rite Aid, WBA and Walgreen Co., an Illinois corporation and wholly owned direct subsidiary of WBA (“Buyer”), Buyer agreed to purchase from Rite Aid 1,932 stores (the “Acquired Stores”), three distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of approximately $4,375,000, on a cash free, debt free basis (the “Asset Sale” or the “Sale”). As of March 27, 2018, the Company has sold all 1,932 Acquired Stores and related assets to WBA in exchange for proceeds of $4,156,686, which were used to repay outstanding debt. Based on its magnitude and because the Company is exiting certain markets, the Sale represents a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for the Asset Sale as required by Accounting Standards Codification ~~210-05 —~~ 210-05—Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the assets and liabilities to be sold, including the 1,932 ~~stores (the “Acquired Stores”),~~Acquired Stores, three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the “Assets to be Sold” or “Disposal Group”) to assets and liabilities held for sale on its ~~condensed~~ consolidated balance sheets as of the periods ended ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017,~~3, 2018, and reclassified the financial results of the Disposal Group in its ~~condensed~~ consolidated statements of operations and ~~condensed~~ consolidated statements of cash flows for all periods presented. Additionally, corporate support activities related to the Disposal Group were not reclassified to discontinued operations. Please see additional information as provided in Note 3 Asset Sale to WBA.

Recently Adopted Accounting Pronouncements

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

~~forfeitures. None of the other provisions in this new guidance had a material impact on the Company’s condensed consolidated financial statements.~~
~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

In May ~~2015,~~2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ~~This~~ ASU ~~removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing~~No. 2014-09 outlines a single comprehensive ~~principles-based~~ model for companies to use in accounting for revenue arising from contracts with ~~additional disclosures regarding uncertainties. The principles-based~~customers and supersedes most current revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.guidance, including industry-specific guidance. In ~~August 2015,~~March 2016, the FASB issued ASU ~~2015-14,~~ No. 2016-08, “Principal Versus Agent Considerations (Reporting Revenue ~~from Contracts with Customers (Topic 606)~~Gross Versus Net),” which amends the principal-versus-agent implementation guidance and in April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” which amends the guidance in those areas in the new revenue recognition standard. These ASUs, collectively the “new revenue standard”, ~~an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the~~are effective ~~date by one year~~ for annual reporting periods (including interim reporting periods within those periods) beginning ~~after December 15, 2017 (fiscal 2019). Subsequently,~~January 1, 2018.
The Company adopted the ~~FASB~~new revenue standard as of March 4, 2018 using the modified retrospective method and applying the new standard to all contracts with customers. Therefore, the comparative financial information has ~~also issued~~not been restated and continues to be reported under the accounting standards ~~updates which clarify the guidance. Early adoption is permitted~~in effect for ~~annual reporting periods beginning after December 15, 2016 (fiscal 2018).~~those periods. In ~~transition, the ASU may be applied retrospectively to each prior period presented or retrospectively~~connection with the ~~cumulative effect recognized as~~adoption of the ~~date of adoption. The~~new revenue standard, the Company ~~does not intend to early adopt the new standard. The Company assembled a cross functional team to identify the population of contracts with customers, for both~~identified one difference in its Retail Pharmacy ~~and Pharmacy Services segments, and evaluate them under~~segment related to the ~~provisions~~timing of revenue recognition for third party prescription revenues, which was historically recognized at the time the prescription was filled. Upon adoption of ASU ~~2014-09. The Company intends to adopt~~No. 2014-09, this revenue is recognized at the time the customer takes possession of the merchandise. In connection with its March 4, 2018 adoption of the new revenue standard on a modified retrospective ~~basis. Under this implementation method,~~basis, the Company ~~will recognize~~recorded a reduction to accounts receivable of $57,897, a reduction to deferred tax assets of $1,772, an increase to inventory of $51,121, and a corresponding increase to accumulated deficit of $8,548 within its Retail Pharmacy segment.
In addition, the Company identified revenues under one specific rebate administration program under which the Company’s Pharmacy Services segment was determined to be the principal and historically recognized revenues and cost of revenues on a gross basis of approximately $123,500 during fiscal 2018. Upon adoption of the new revenue standard, the Company is now recording revenue from this program on a net basis.
The following is a discussion of the Company’s revenue recognition policies by segment under the new revenue recognition accounting standard:
Revenue Recognition
Retail Pharmacy Segment
For front end sales, the Retail Pharmacy segment recognizes revenues upon the transfer of control of the goods to the customer. The Company satisfies its performance obligation at the point of sale for front end transactions. The Retail Pharmacy segment front end revenue is measured based on the amount of fixed consideration that we expect to receive, net of an allowance for estimated future returns. Return activity is immaterial to revenues and results of operations in all periods presented.
For pharmacy sales, the Retail Pharmacy segment recognizes revenue upon the transfer of control of the goods to the customer. The Company satisfies its performance obligation, upon pickup by the customer, which is when the customer takes title to the product. Each prescription claim is its own arrangement with the customer and is a performance obligation, separate and distinct from other prescription claims. The Company’s revenue is measured based on the amount of fixed consideration that we expect to receive, reduced by refunds owed to the third party payor for pricing guarantees and performance against defined value-based service and performance metrics. The inputs to these estimates are not highly subjective or volatile. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Prescriptions are generally not returnable.
The Retail Pharmacy segment offers a chain-wide loyalty card program titled wellness +. Individual customers are able to become members of the wellness + program. Members participating in the wellness + loyalty card program earn points on a calendar year basis for eligible front end merchandise purchases and qualifying prescription purchases. One point is awarded for each dollar spent towards front end merchandise and 25 points are awarded for each qualifying prescription.
Members reach specific wellness + tiers based on the points accumulated during the calendar year, which entitles such customers to certain future discounts and other benefits upon reaching that tier. For example, any customer that reaches 1,000 points in a calendar year achieves the “Gold” tier, enabling him or her to receive a 20% discount on qualifying purchases of front end merchandise for the remaining portion of the calendar year and also the next calendar year. There is also a similar “Silver” level with a lower threshold and benefit level.
Points earned pursuant to the wellness+ program represent a performance obligation and the Company allocates revenue between the merchandise purchased and the wellness + points based on the relative stand-alone selling price of each performance obligation. The relative value of the wellness + points is initially deferred as a contract liability (included in other current and noncurrent liabilities). As customers redeem the points to receive discounted front end merchandise or when the points expire, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into revenue. The Retail Pharmacy segment had accrued contract liabilities of $68,426 as of September 1, 2018, of which $51,916 is included in other current liabilities and $16,510 is included in noncurrent liabilities. The Retail Pharmacy segment had accrued contract liabilities of $63,851 as of March 3, 2018, of which $50,036 is included in other current liabilities and $13,815 is included in noncurrent liabilities.
The wellness + program also allows a customer to earn Bonus Cash based on qualifying purchases. Wellness + Rewards members have the opportunity to redeem their accumulated Bonus Cash on a future purchase with a 60 day expiration window.
For a majority of the Bonus Cash issuances, funding is provided by our vendors through contractual arrangements. This funding is treated as a contract liability and remains a contract liability until (i) wellness + Rewards members redeem their Bonus Cash, or (ii) wellness + Rewards members allow the Bonus Cash to expire. Upon redemption or expiration, the Retail Pharmacy segment recognizes an allocable portion of the accrued contract liability into revenue. For Bonus Cash issuances that are not vendor funded, the contract liability is recorded at the time of issuance through a reduction to revenues, and not recognized until the Bonus Cash is redeemed or expires.
Pharmacy Services Segment
The Pharmacy Services segment sells prescription drugs indirectly through its retail pharmacy network and directly through its mail service dispensing pharmacy. The Pharmacy Services segment recognizes revenue from prescription drugs sold by (i) its mail service dispensing pharmacy and (ii) under retail pharmacy network contracts where it is the principal at the contract prices negotiated with its clients, primarily employers, insurance companies, unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, and other sponsors of health benefit plans, and individuals throughout the United States. Revenues include: (i) the portion of the price the client pays directly to the Pharmacy Services segment, net of any volume-related or other discounts paid back to the client (see “Drug Discounts” below), (ii) the price paid to the Pharmacy Services segment by client plan members for mail order prescriptions (“Mail Co-Payments”) (iii) client plan member copayments made directly to the retail pharmacy network, and (iv) administrative fees. Revenue is recognized when the Pharmacy Services segment meets its performance obligations relative to each transaction type. The following revenue recognition policies have been established for the Pharmacy Services segment:
·                  Revenues generated from prescription drugs sold by third party pharmacies in the Pharmacy Services segment’s retail pharmacy network and associated administrative fees are recognized at the Pharmacy Services segment’s point-of-sale, which is when the claim is adjudicated by the Pharmacy Services segment’s online claims processing system. At this point the Company has performed all of its performance obligations.
·                  Revenues generated from prescription drugs sold by the Pharmacy Services segment’s mail service dispensing pharmacy are recognized when the prescription is shipped. At the time of shipment, the Pharmacy Services segment has performed all of its performance obligations under its client contracts, as control of and title to the product has passed to the clients plan member. The Pharmacy Services segment does not experience a significant level of returns or reshipments.
·                  Revenues generated from administrative fees based on membership or claims volume are recognized monthly based on the terms within the individual contracts, either a monthly member based fee, or a claims volume based fee.
In the majority of its contracts, the Pharmacy Services segment is the principal because its client contracts give clients the right to obtain access to its pharmacy contracts under which the Pharmacy Services segment directs its pharmacy network to provide the services (drug dispensing, consultation, etc.) and goods (prescription drugs) to the clients’ members at its negotiated pricing. The Pharmacy Services segment’s obligations under its client contracts are separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network contracts. Pursuant to these contracts, the Pharmacy Services segment is contractually required to pay the third party pharmacies in its retail pharmacy network for products sold after payment is received from its clients. The Pharmacy Services segment has control over these transactions until the prescription is transferred to the member and, thus, that it is acting as a principal. As such, the Pharmacy Services segment records the total prescription price contracted with clients in revenues.
Amounts paid to pharmacies and amounts charged to clients are exclusive of the applicable co-payment under Pharmacy Services segment contracts. Retail pharmacy co-payments, which we instruct retail pharmacies to collect from members, are included in our revenues and our cost of revenues.
For contracts under which the Pharmacy Services segment acts as an agent or does not control the prescription drugs prior to transfer to the client, no revenue is recognized.
Drug Discounts—The Pharmacy Services segment deducts from its revenues that are generated from prescription drugs sold by third party pharmacies any rebates, inclusive of discounts and fees, earned by its clients based on utilization levels and other factors as negotiated with the prescription drug manufacturers or suppliers. Rebates are paid to clients in accordance with the terms of client contracts.
Medicare Part D—The Pharmacy Services segment, through its EIC subsidiary, participates in the federal government’s Medicare Part D program as a Prescription Drug Plan (“PDP”). Please refer to Note 8, Medicare Part D.
Disaggregation of Revenue
The following tables disaggregate the Company’s revenue by major source in each segment for the thirteen and twenty-six week periods ended September 1, 2018:
In thousands

For the thirteen week period
ended September 1, 2018

For the twenty-six week period
ended September 1, 2018

Retail Pharmacy segment:

Pharmacy sales

$
2,573,909

$
5,139,194

Front end sales

1,301,062

2,597,209

Other revenue

36,541

72,874

Total Retail Pharmacy segment

$
3,911,512

$
7,809,277

Pharmacy Services segment

1,561,811

3,104,573

Intersegment elimination

(51,961
)
(103,998
)
Total revenue

$
5,421,362

$
10,809,852

Impact of New Revenue Recognition Standard on Financial Statement Line Items
The Company adopted the new revenue standard using the modified retrospective method. The cumulative effect of ~~initially~~ applying the new ~~guidance~~standard to all contracts was recorded as an adjustment to accumulated deficit as of the ~~opening retained earnings~~adoption date. As a result of applying the modified retrospective method to adopt the new revenue standard, the following adjustments were made to accounts on the condensed consolidated balance ~~for~~sheet as of March 4, 2018:

Impact of Change in Accounting Policy

As Reported

Adjusted

In thousands

March 3, 2018

Adjustments

March 4, 2018

Condensed Consolidated Balance Sheet:

Accounts receivable, net

$
1,869,100

$
(57,897
)
$
1,811,203

Inventories, net

1,799,539

51,121

1,850,660

Deferred tax assets

594,019

(1,772
)
592,247

Total assets

8,989,327

(8,548
)
8,980,779

Accumulated deficit

(4,282,471
)
(8,548
)
(4,291,019
)
Total shareholders’ equity

1,601,010

(8,548
)
1,592,462

Reclassification of the ~~annual reporting~~Statements of Cash Flows presentation
During the thirteen week period ~~of initial application. While~~ended September 1, 2018, the Company ~~is continuing~~expanded its ~~assessment~~disclosure on its Statements of ~~all of~~Cash Flows to include changes in other assets separate from changes in other liabilities, which had historically been combined. Prior period amounts have been reclassified to conform to the potential impacts of the new standard, it does not expect the implementation of the standard to have a material impact on the Company’s consolidated financial position, results of operations or cash flow.current period presentation.
Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases, (Topic 842), which is intended to improve financial reporting around leasing transactions. The ASU affects all companies and other organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real estate and manufacturing equipment. This ASU will require organizations that lease assets—referred to as “leases”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those years beginning January 1, 2019 (fiscal 2020). During ~~its November 29, 2017 meeting,~~July 2018, the FASB ~~tentatively decided~~issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. Among other things, ASU 2018-11 provides administrative relief by allowing entities to ~~amend certain aspects~~implement the lease standard on a modified retrospective basis, similar to the method used by the Company to adopt the revenue standard. Effectively, the modified retrospective basis permits the Company to adopt the lease standard through a cumulative effect adjustment to its opening balance sheet for the first quarter of fiscal 2020, with the cumulative effect accounted for as a component of retained earnings, and report under the new ~~leasing standard. The tentative amendments include~~lease standard on a ~~provision to allow entities to elect not to restate comparative periods in the period of~~post adoption ~~when transitioning to the new standard. The Company believes that the new standard will have a material impact on its financial position.~~basis. The Company is currently evaluating the impact this standard implementation will have on its results of operations and cash ~~flows.~~
~~In January 2017,~~flows, and we anticipate a material increase in assets and liabilities due to the ~~FASB issued ASU No. 2017-04,~~ ~~Intangibles—Goodwill and Other, (Topic 350): Simplifying the Test for Goodwill Impairment~~~~, which is intended to simplify the subsequent measurement and impairment of goodwill. The ASU simplifies the complexity of evaluating goodwill for impairment by eliminating the second step~~recording of the ~~impairment test, which compares the implied fair value of a reporting unit’s goodwill to the carrying amount of~~required right-of-use asset and corresponding liability for all lease obligations that goodwill. Instead, the ASU requires entities to compare the fair value of a reporting unit to its carrying amount in order to determine the amount of goodwill impairment recognized. ASU No. 2017-04 is effective for fiscal years and interim periods within those years beginning after December 15, 2019 (fiscal 2020). Early adoption of all the amendments for ASU 2017-04 is permitted. Amendments must be applied prospectively. The Company is in process of assessing the impactare currently classified as operating leases.
2. Termination of the ~~adoption of ASU No. 2017-04 on its financial position, results of operations and cash flows.~~
~~2. Acquisition~~Merger Agreement with Albertsons Companies, Inc.

On ~~June 24, 2015, the Company acquired TPG VI Envision BL,~~February 18, 2018, Rite Aid entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Albertsons, Ranch Acquisition II LLC, and Envision Topco Holdings, LLC (“EnvisionRx”), pursuant to the terms of an agreement (“Agreement”) dated February 10, 2015 (the “Acquisition”). EnvisionRx, which has been rebranded as EnvisionRxOptions (“EnvisionRx” or “EnvisionRxOptions”), is a full-service pharmacy services provider. EnvisionRx provides both transparent and traditional pharmacy benefit manager (“PBM”) service options through its EnvisionRx and MedTrak PBMs, respectively. EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies; access to the nation’s largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software;Delaware limited liability company and a national Medicare Part D prescription drug plan through Envision Insurance Company’s (“EIC”) EnvisionRx Plus Silver product for the low income auto-assign market and its Clear Choice product for the chooser market. EnvisionRx is headquartered in Twinsburg, Ohio and operates as a 100 percent ownedwholly-owned direct subsidiary of Albertsons (“Merger Sub II”) and Ranch Acquisition Corp., a Delaware corporation and a wholly-owned direct subsidiary of Merger Sub II (“Merger Sub” and, together with Merger Sub II, the ~~Company.~~
~~Pursuant to the terms of the Agreement, as consideration for the Acquisition, the Company paid $1,882,211 in cash and issued 27,754 shares of~~“Merger Subs”). On August 8, 2018, Rite Aid, ~~common stock. The Company financed the cash portion of the Acquisition with borrowings under its Amended~~Albertsons and Restated Senior Secured Revolving Credit Facility, and the net proceeds from the April 2, 2015 issuance of $1,800,000 aggregate principal amount of 6.125% senior notes due 2023 (the “6.125% Notes”). The consideration associated with the common
~~stock was $240,907 based on a stock price of $8.68 per share, representing the closing price of the Company’s common stock on the closing date of the Acquisition.~~
The Company’s condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016 include EnvisionRx results of operations (please see Note 13 Segment Reporting for the Pharmacy Services segment results included within the condensed consolidated financial statements for the thirteen and thirty-nine week periods ended December 2, 2017 and November 26, 2016, which reflects the results of EnvisionRx). The Company’s condensed consolidated financial statements reflect the purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the Acquisition date.
~~During fiscal 2017, the Company finalized the valuation of the identifiable assets acquired and the liabilities assumed. The following is the allocation of the purchase price:~~
Final purchase price

Cash consideration

$
1,882,211

Stock consideration

240,907

Total

$
2,123,118

Final purchase price allocation

Cash and cash equivalents

$
103,834

Accounts receivable

892,678

Inventories

7,276

Prepaid expenses and other current assets

13,386

Total current assets

1,017,174

Property and equipment

13,196

Intangible assets(1)

646,600

Goodwill

1,639,355

Other assets

7,219

Total assets acquired

3,323,544

Accounts payable

491,672

Reinsurance funds held

381,225

Other current liabilities(2)

215,770

Total current liabilities

1,088,667

Other long term liabilities(3)

111,759

Total liabilities assumed

1,200,426

Net assets acquired

$
2,123,118

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

Estimated
Fair Value

Estimated
Useful Life
(In Years)

Customer relationships

$
465,000

17

CMS license

57,500

25

Claims adjudication and other developed software

59,000

7

Trademarks

20,100

10

Backlog

11,500

3

Trademarks

33,500

Indefinite

Total

$
646,600

~~(2)~~                                 Other current liabilities includes $116,057 due to TPG under the terms of the Agreement, representing the amounts due to EnvisionRx from CMS, less corresponding amounts due to various reinsurance providers under certain reinsurance programs, for CMS activities that relate to the year ended December 31, 2014. This liability was satisfied with a payment to TPG on November 5, 2015.
~~(3)~~                                 ~~Primarily relates to deferred tax liabilities.~~
The above goodwill represents future economic benefits expected to be recognized from the Company’s expansion into the pharmacy services market, as well as expected future synergies and operating efficiencies from combining operations with EnvisionRx. Goodwill resulting from the Acquisition of $1,639,355 has been allocated to the Pharmacy Services segment of which $1,368,657 is deductible for tax purposes.
~~3. Asset Sale to WBA~~
~~Termination of~~ Merger ~~Agreement with WBA~~
~~On June 28, 2017, Rite Aid, WBA and Victoria Merger Sub, Inc.~~Subs entered into a Termination Agreement (the “Merger Termination Agreement”) under which the parties mutually agreed to terminate the Merger Agreement. ~~The~~Subject to limited customary exceptions, the Merger Termination Agreement ~~provides that WBA would pay~~mutually releases the parties from any claims of liability to one another relating to the contemplated Merger. Under the terms of the Merger Agreement, neither Rite Aid nor Albertsons is responsible for any payments to the other party as a result of the termination ~~fee~~of the Merger Agreement and Rite Aid is no longer subject to the interim operating covenants and restrictions contained in the ~~amount of $325,000, which was received on June 30, 2017.~~Merger Agreement.

~~Entry Into Amended and Restated~~3. Asset ~~Purchase Agreement with~~Sale to WBA

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

The Company announced on September 19, 2017 that the waiting period under the ~~Hart-Scott-Rodino Antitrust Improvements~~HSR Act, ~~of 1976, as amended (the “HSR Act”),~~ expired with respect to the Sale. ~~On November~~As of March 27, ~~2017,~~2018, the Company ~~announced that it had~~has completed the ~~pilot closing~~store transfer process, and ~~first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid~~all 1,932 stores and related assets have been transferred to WBA and the Company has received cash proceeds of $4,156,686. The transfer of the three (3) distribution centers and related assets is expected to begin after September 1, 2018. The closing conditions related to the ~~Buyer. With the final significant closing condition met,~~asset transfer have been satisfied, and the ~~successful completion~~Company has recorded a pre-tax gain on the Sale of the stores of $2,489,389.
On September 13, 2018, the Company completed the sale of one of its distribution centers and related assets to WBA for proceeds of $61,251. The impact of the ~~pilot closing~~sale of the distribution center and related assets will be included in the ~~first subsequent closings,~~results of operations and cash flows of discontinued operations during the ~~Sale will proceed as contemplated under~~third quarter ending December 1, 2018. The transfer of the ~~Amended~~remaining two distribution centers and ~~Restated Asset Purchase Agreement. The Sale~~related assets remains subject to minimal customary closing conditions applicable only to ~~individual stores~~the distribution centers being transferred at such ~~subsequent~~distribution center closings, as specified in the Amended and Restated Asset Purchase Agreement.

The parties to the Amended and Restated Asset Purchase Agreement have each made customary representations and warranties. The Company has agreed to various covenants and agreements, including, among others, the Company’s agreement to conduct its business at the ~~Acquired Stores~~distribution centers being sold to WBA in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the ~~subsequent closings.~~distribution center closing. The Company has also agreed to provide transition services to Buyer for up to three (3) years after the initial closing of the Sale. ~~During~~Under the terms of the TSA, the Company provides various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, the Company purchases the related inventory and incurs cash payments for the selling, general and administrative activities, which, the Company bills on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017,~~September 1, 2018 were $1,835,484 and $3,876,559, respectively, of which $385,936 is included in Accounts receivable, net. The Company charged WBA TSA fees of $23,213 and $46,948 during the ~~amount charged~~thirteen and twenty-six week periods ended September 1, 2018, respectively, which are reflected as a reduction to ~~Buyer for transition services was nominal.~~selling, general and administrative expenses.

In the event that the Company enters into an agreement to sell all of the remainder of Rite Aid or over 50% of its stock or assets to a third party prior to the end of the transition period under the Transition Services Agreement (“TSA”), any potential acquirer would be obligated to assume the Company’s remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, the Company has the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen’s for a period of ten (10) years, subject to certain terms and conditions. The Company has until May of 2019 to exercise this option.

~~Divestiture of the Assets to be Sold~~
~~During the thirteen weeks ended December 2, 2017,~~Based on its magnitude and because the Company sold 97 stores and related assets to the Buyer in exchange for proceeds of $240,920, and recognized a pre-tax gain of approximately $157,010. During December 2017, the Company sold an additional 260 stores and related assets to WBA for proceeds of $473,980. The Company estimates that the total pre-tax gain onis exiting certain markets, the Sale ~~will be approximately $2.5 billion. The Company expects to complete the majority of the Sale by the end of its first quarter of fiscal 2019.~~
~~The Company classified the operating results of the Disposal Group as discontinued operations in its financial statements in accordance with GAAP, as the divestiture of these assets represents~~represented a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05—Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the Disposal Group to assets and liabilities held for sale on its consolidated balance sheets as of the periods ended September 1, 2018 and March 3, 2018, and reclassified the financial results of the Disposal Group in its consolidated statements of operations and consolidated statements of cash flows for all periods presented. The Company also revised its discussion and presentation of operating and financial results to be reflective of its continuing operations as required by ASC 205-20.
The carrying amount of the Assets to be Sold, which were included in the Retail Pharmacy segment, have been reclassified from their historical balance sheet presentation to current ~~and non-current~~ assets and liabilities held for sale as follows:

December 2,
2017

March 4,
2017

Inventories

$
1,071,253

$
1,047,670

Property and equipment

666,118

—

Goodwill (a)

30,994

—

Intangible assets

96,461

—

Other assets

3,302

—

Current assets held for sale

$
1,868,128

$
1,047,670

Property and equipment

$
—

$
725,230

Goodwill (a)

—

32,632

Intangible assets

—

120,389

Other assets

—

4,017

Noncurrent assets held for sale

$
—

$
882,268

Current maturities of long-term lease financing obligations

$
1,908

$
3,626

Accrued salaries, wages and other current liabilities

24,020

29,057

Long-term debt, less current maturities (b)

3,786,480

—

Lease financing obligations, less current maturities

4,164

—

Other noncurrent liabilities

20,947

—

Current liabilities held for sale

$
3,837,519

$
32,683

Long-term debt, less current maturities (b)

$
—

$
4,027,400

Lease financing obligations, less current maturities

—

6,866

Other noncurrent liabilities

—

23,126

Noncurrent liabilities held for sale

$
—

$
4,057,392

September 1,
2018

March 3,
2018

Inventories

$
113,523

$
264,286

Property and equipment

68,466

158,433

Goodwill(a)

—

4,629

Intangible assets

—

10,789

Current assets held for sale

$
181,989

$
438,137

Current maturities of long-term lease financing obligations

$
—

$
270

Accrued salaries, wages and other current liabilities

—

6,146

Long-term debt, less current maturities(b)

—

549,549

Lease financing obligations, less current maturities

—

838

Other noncurrent liabilities

—

3,402

Current liabilities held for sale

$
—

$
560,205

(a)                                 The Company had $76,124 of goodwill in its Retail Pharmacy segment resulting from the acquisition of Health Dialog and RediClinic, which is accounted for as Retail Pharmacy segment enterprise goodwill. The Company has allocated a portion of its Retail Pharmacy segment enterprise goodwill to the discontinued operation.

(b)                                 In connection with the Sale, the Company ~~is estimating~~had estimated that the Sale ~~will provide~~would generate excess cash proceeds of approximately $4,027,400 which ~~will~~would be used to repay outstanding indebtedness. ~~As such,~~During the ~~$4,027,400~~twenty-six week period ended September 1, 2018, the Company has a use of cash for financing purposes of $1,343,793 in its discontinued operations and, based on refinements to its calculations, reduced its estimate of excess cash proceeds by approximately $24,500 and reclassified that amount to assets held and used. Consequently, the Company has classified $0 and $549,549 of estimated cash proceeds to be used for debt repayment ~~of outstanding indebtedness has been included in~~to liabilities held for sale as of September 1, 2018 and March ~~4, 2017. As of December 2, 2017,~~3, 2018, respectively. For the twenty-six week period ended September 1, 2018, the Company repaid outstanding indebtedness of ~~$240,920~~$1,343,793 with ~~transaction~~Sale proceeds. For the fifty-two week period ended March 3, 2018, the Company repaid outstanding indebtedness of $3,135,000 with the proceeds ~~received.~~from the Sale.

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

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

Revenues

$
2,386,710

$
2,452,996

$
7,130,653

$
7,376,859

Costs and expenses:

Cost of revenues(a)

1,752,664

1,802,987

5,274,187

5,386,605

Selling, general and administrative expenses(a)

572,809

605,216

1,765,621

1,821,506

Lease termination and impairment charges

11

66

74

76

Interest expense (b)

59,456

56,006

178,797

170,136

Gain on stores sold to Walgreens Boots Alliance

(157,010
)
—

(157,010
)
—

(Gain) loss on sale of assets, net

(589
)
726

23

2,119

2,227,341

2,465,001

7,061,692

7,380,442

Income (loss) from discontinued operations before income taxes

159,369

(12,005
)
68,961

(3,583
)
Income tax expense (benefit)

60,155

(3,405
)
26,705

356

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

$
99,213

$
(8,600
)
$
42,257

$
(3,939
)

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

Revenues

$
4,716

$
2,366,086

$
28,116

$
4,743,943

Costs and expenses:

Cost of revenues(a)

182

1,740,758

17,263

3,521,523

Selling, general and administrative expenses(a)

2,570

592,172

16,445

1,192,812

Lease termination and impairment charges

—

15

—

63

Loss on debt retirements, net

18,075

—

22,645

—

Interest expense (b)

—

60,404

4,615

119,341

Loss (gain) on stores sold to Walgreens Boots Alliance

15

—

(360,542
)
—

Loss on sale of assets, net

11

768

11

612

20,853

2,394,117

(299,563
)
4,834,351

(Loss) income from discontinued operations before income taxes

(16,137
)
(28,031
)
327,679

(90,408
)
Income tax (benefit) expense

(9,345
)
(10,387
)
78,328

(33,452
)
Net (loss) income from discontinued operations, net of tax

$
(6,792
)
$
(17,644
)
$
249,351

$
(56,956
)
(a)                                 Cost of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate overhead. These charges are reflected in continuing operations.
(b)                                 In accordance with ASC 205-20, the operating results for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016~~respectively, for the discontinued operations include interest expense relating to ~~the $4,027,400 of~~ outstanding indebtedness ~~expected to be~~ repaid with the estimated excess proceeds from the Sale.

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

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

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

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

Basic and diluted (loss) income per share:

Numerator:

Net (loss) income from continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

$
(352,348
)
$
188,360

$
(394,075
)
$
152,323

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

99,213

(8,600
)
42,257

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

$
81,031

$
15,010

$
176,398

$
25,195

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

(6,792
)
(17,644
)
249,351

(56,956
)
(Loss) income attributable to common stockholders — basic and diluted

$
(359,140
)
$
170,716

$
(144,724
)
$
95,367

Denominator:

Basic weighted average shares

1,048,502

1,045,028

1,048,342

1,043,887

1,056,464

1,048,548

1,055,424

1,047,687

Outstanding options and restricted shares, net

7,367

15,735

18,948

17,117

—

18,668

—

22,597

Diluted weighted-average shares

1,055,869

1,060,763

1,067,290

1,061,004

1,056,464

1,067,216

1,055,424

1,070,284

Basic and diluted (loss) earnings per share:

Basic and diluted (loss) income per share:

Continuing operations

$
(0.02
)
$
0.02

$
0.13

$
0.03

$
(0.33
)
$
0.18

$
(0.37
)
$
0.14

Discontinued operations

0.10

(0.01
)
0.04

(0.01
)

(0.01
)
(0.02
)
0.23

(0.05
)
Net earnings per share

$
0.08

$
0.01

$
0.17

$
0.02

Net basic and diluted (loss) income per share

$
(0.34
)
$
0.16

$
(0.14
)
$
0.09

Due to their antidilutive effect, ~~9,861~~25,163 and ~~3,320~~9,206 potential common shares related to stock options have been excluded from the computation of diluted income per share for the thirteen week period ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively. Due to their antidilutive effect, ~~5,195~~25,163 and ~~3,320~~5,596 potential common shares related to stock options have been excluded
from the computation of diluted income per share for the ~~thirty-nine~~twenty-six week period ended ~~December~~September 1, 2018 and September 2, 2017, respectively. Also, excluded from the computation of diluted income per share for the thirteen and ~~November 26, 2016, respectively.~~twenty-six week periods ended September 1, 2018 and September 2, 2017 are restricted shares of 7,811 and 0, respectively, which are included in shares outstanding.

5. Lease Termination and Impairment Charges

Lease termination and impairment charges consist of amounts as follows:

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

Impairment charges

$
315

$
890

$
946

$
1,578

Lease termination charges

3,624

6,309

10,144

18,625

$
3,939

$
7,199

$
11,090

$
20,203

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

Impairment charges

$
33,562

$
—

$
33,845

$
659

Lease termination charges

6,047

3,113

15,623

6,492

$
39,609

$
3,113

$
49,468

$
7,151

Impairment Charges

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

~~Lease Termination Charges~~
~~As part~~During the thirteen week period ended September 1, 2018, due to changes in circumstances at its Retail Pharmacy segment relative to a decline in its current and anticipated operating results and related cash flows as compared to its original projections as announced on August 6, 2018, the Company determined that an active store impairment assessment was required. Based on the results of the ~~Company’s ongoing business activities,~~active store impairment assessment, the Company ~~assesses~~recorded impairment charges of $19,277 relating to 288 active stores. Additionally, during the thirteen week period ended September 1, 2018, the Company terminated a project to replace the point of sale software in its stores, ~~and distribution centers for potential closure or relocation. Decisions~~which resulted in an impairment charge of $14,285 due to ~~close or relocate stores or distribution centers in future periods would result in lease termination charges, lease exit costs and inventory liquidation charges, as well as impairment~~the write-off of ~~assets at these locations. The following table reflects~~ the ~~closed store and distribution center charges that relate to new closures, changes in assumptions and interest accretion:~~

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

Balance—beginning of period

$
144,011

$
190,708

$
165,138

$
208,421

Provision for present value of noncancellable lease payments of closed stores

1,138

2,725

2,051

5,877

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

(264
)
137

(612
)
2,044

Interest accretion

2,776

3,482

8,778

10,878

Cash payments, net of sublease income

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

$
135,861

$
179,979

$
135,861

$
179,979

~~6. Fair Value Measurements~~related assets.

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

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

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

·                  Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.
Non-Financial Assets Measured on a Non-Recurring Basis

Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 2 and Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use assets. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest (which is Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. Significant increases or decreases in actual cash flows may result in valuation changes. During the ~~thirty-nine~~twenty-six week period ended ~~December~~September 1, 2018, long-lived assets from continuing operations with a carrying value of $40,488, primarily store assets, were written down to their fair value of $6,643, resulting in an impairment charge of $33,845 of which $33,562 relates to the thirteen week period ended September 1, 2018. During the twenty-six week period ended September 2, 2017, long-lived assets from continuing operations with a carrying value of ~~$1,224,~~$964, primarily store assets, were written down to their fair value of ~~$278,~~$305, resulting in an impairment charge of ~~$946 of which $315 relates to~~$659. There was no impairment charge in the thirteen week period ended ~~December~~September 2, 2017. During the thirty-nine week period ended November 26, 2016, long-lived assets from continuing operations with a carrying value of $3,309, primarily store assets, were written down to their fair value of $1,731, resulting in an impairment charge of $1,578 of which $890 relates to the thirteen week period ended November 26, 2016. If our actual future cash flows differ from our projections materially, certain stores that are either not impaired or partially impaired in the current period may be further impaired in future periods.

The ~~following~~ table ~~presents fair values for those assets measured at~~below sets forth by level within the fair value ~~on a non-recurring basis at December~~hierarchy the long-lived assets as of the impairment measurement date for which an impairment assessment was performed and total losses as of September 1, 2018 and September 2, ~~2017 and November 26, 2016:~~2017:

~~Fair Value Measurement Using~~

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)

Fair Values
as of
Impairment
Date

Total
Charges
September 1,
2018

Long-lived assets held and used

$
—

$
—

$
6,643

$
6,643

$
(33,562
)
Long-lived assets held for sale

—

1,292

—

1,292

(283
)
Total

$
—

$
1,292

$
6,643

$
7,935

$
(33,845
)

Level 1

Level 2

Level 3

Total as of
December 2,
2017

Long-lived assets held for use

$
—

$
—

$
174

$
174

Long-lived assets held for sale

$
—

$
104

$
—

$
104

Total

$
—

$
104

$
174

$
278

Level 1

Level 2

Level 3

Total as of
November 26,
2016

Long-lived assets held for use

$
—

$
—

$
708

$
708

Long-lived assets held for sale

$
—

$
1,023

$
—

$
1,023

Total

$
—

$
1,023

$
708

$
1,731

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)

Fair Values
as of
Impairment
Date

Total
Charges
September 2,
2017

Long-lived assets held and used

$
—

$
—

$
201

$
201

$
(211
)
Long-lived assets held for sale

—

104

—

104

(448
)
Total

$
—

$
104

$
201

$
305

$
(659
)
The above assets reflected in the caption Long-lived assets held for sale are separate and apart from the Assets to be Sold and dodue to their immateriality, have not been reclassified to assets held for sale.

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

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

Balance—beginning of period

$
131,182

$
155,666

$
133,290

$
165,138

Provision for present value of noncancellable lease payments of closed stores

3,201

—

11,331

913

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

324

201

(714
)
(348
)
Interest accretion

2,556

2,907

5,241

6,002

Cash payments, net of sublease income

(15,075
)
(14,763
)
(26,960
)
(27,694
)
Balance—end of period

$
122,188

$
144,011

$
122,188

$
144,011

6. Fair Value Measurements
The Company utilizes the three-level valuation hierarchy as described in Note 5, Lease Termination and Impairment Charges, for the recognition and disclosure of fair value measurements.
As of ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ the Company did not have any financial assets measured on a recurring basis.

Other Financial Instruments

Financial instruments other than long-term indebtedness include cash and cash equivalents, accounts receivable and accounts payable. These instruments are recorded at book value, which we believe approximate their fair values due to their short term nature. In addition, as of ~~December 2, 2017~~September 1, 2018 and March 3, 2018 the Company has ~~$7,295~~$7,217 and $7,282, respectively, of investments, carried at amortized cost as these investments are being held to maturity, which are included as a component of other ~~assets. As of March 4, 2017 the Company has $6,874 of investments, carried at amortized cost as these investments are being held to maturity, which are included as a component of prepaid expenses and other current~~ assets. The Company believes the carrying value of these investments approximates their fair value.

The fair value for LIBOR-based borrowings under the Company’s senior secured credit facility ~~and first and second lien term loans are~~is estimated based on the quoted market price of the financial instrument which is considered Level 1 of the fair value hierarchy. The fair values of substantially all of the Company’s other long-term indebtedness are estimated based on quoted market prices of the financial instruments which are considered Level 1 of the fair value hierarchy. The carrying amount and estimated fair value of the Company’s total long-term indebtedness was ~~$6,772,270~~$3,481,831 and ~~$6,588,733,~~$3,231,901, respectively, as of ~~December 2, 2017.~~September 1, 2018. There were no outstanding derivative financial instruments as of ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017.~~3, 2018.

7. Income Taxes

The new federal tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”) enacted on December 22, 2017 (the “Enactment Date”) introduced significant changes to U.S. income tax law. Effective for tax years beginning on or after January 1, 2018, the Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%.
The Company recorded an income tax benefit from continuing operations of ~~$16,061~~$106,559 and ~~$4,682~~income tax expense of $117,450 for the thirteen week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively, and an income tax ~~expense~~benefit from continuing operations of ~~$89,268~~$116,056 and an income tax ~~benefit~~expense from continuing operations of ~~$3,824~~$105,329 for the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively. The effective tax rate for the thirteen week periods ended September 1,
~~ended December~~2018 and September 2, 2017 was 23.2% and ~~November 26, 2016~~38.4%, respectively. The effective tax rate for the twenty-six week periods ended September 1, 2018 and September 2, 2017 was ~~46.9%~~22.8% and ~~(24.7)%~~40.9%, respectively. The effective tax rate for the ~~thirty-nine~~thirteen and twenty-six week periods ended ~~December 2, 2017~~September 1, 2018 includes an adjustment of (4.2)% and ~~November 26, 2016 was 40.0% and (15.1)~~(3.9)%, ~~respectively.~~ respectively, to increase the valuation allowance related to certain state deferred taxes. The ~~effective~~ tax ~~rate~~expense for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 2, 2017 is higher in comparison to 2018, as it is based on a federal statutory rate of 35%, and includes ~~an adjustment of 13% and 1%, respectively, for changes~~increases to the valuation allowance primarily ~~relating~~related to state NOLs. The effective tax rate for the thirty-nine week period ended December 2, 2017 also includes an adjustment of 55%, primarily related to the tax impact of the Walgreens Boots Alliance merger termination fee received in the second quarter of fiscal 2018. The tax benefit for the thirteen and thirty-nine week periods ended November 26, 2016 was the result of lower projected earnings for the Retail Pharmacy segment which resulted in a cumulative adjustment to the annual effective tax rate.deferred taxes.

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

~~While~~The Company believes that it is ~~expected~~reasonably possible that ~~the amount~~a decrease of up to $13,498 in unrecognized tax benefits ~~will change~~related to state exposures may be necessary in the next twelve months ~~the Company~~however management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

The Company regularly evaluates valuation allowances established for deferred tax assets for which future realization is ~~uncertain.~~uncertain considering historical profitability, projected taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Management will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. The Company continues to maintain a valuation allowance against net deferred tax assets of ~~$826,798~~$920,059 and ~~$226,726,~~$896,800, which relates primarily to state deferred tax assets at ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017,~~3, 2018, respectively. The increase in valuation allowance for the period December 2, 2017 relates primarily to a Pennsylvania law change which required an increase to the state deferred tax asset for certain net operating losses with an offsetting valuation allowance adjustment.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation. The Company expects to record a tax expense in the fourth quarter of fiscal 2018 between $200,000 and $325,000, primarily due to the re-measurement of its net deferred tax assets.

8. Medicare Part D

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

EIC is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws and regulations, EIC must file quarterly and annual reports with the National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under formulas established by certain states and must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe these limitations on dividends and distributions materially impact its financial position. EIC is subject to minimum capital and surplus requirements in certain states. The minimum amount of capital and surplus required to satisfy regulatory requirements in these states is ~~$36,426~~$31,920 as of ~~September~~June 30, ~~2017.~~2018. EIC was in excess of the minimum required amounts in these states as of ~~December 2, 2017.~~September 1, 2018.

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

As of ~~December 2, 2017,~~September 1, 2018, accounts receivable, net included ~~$279,148~~$473,211 due from CMS and accrued salaries, wages and other current liabilities included ~~$130,211~~$140,992 of EIC liabilities under certain reinsurance contracts.As of March ~~4, 2017,~~3, 2018, accounts receivable, net included ~~$245,766~~$350,563 due from CMS and accrued salaries, wages and other current liabilities included ~~$145,903~~$183,318 of EIC liabilities under certain reinsurance contracts. During calendar 2017, EIC limited its exposure to loss and ~~recovers~~recovered a portion of benefits paid by utilizing quota-share reinsurance with a commercial reinsurance company. Beginning calendar 2018, EIC does not have a reinsurance agreement in place related to its individual and certain group Medicare Part D Plans.
9. Manufacturer Rebates Receivables
The Pharmacy Services Segment has manufacturer rebates receivables of $474,244 and $370,861 included in Accounts receivable, net, as of September 1, 2018 and March 3, 2018, respectively.
910. Goodwill and Other Intangible Assets

Goodwill and indefinitely-lived assets, such as certain trademarks acquired in connection with acquisition transactions, are not amortized, but are instead evaluated for impairment on an annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate ~~that impairment~~it may be more ~~likely.~~ 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.
During the thirteen ~~and thirty-nine weeks~~week period ended ~~December 2, 2017 and~~September 1, 2018, the ~~fifty-three weeks ended March 4, 2017, no~~Company lowered its outlook for fiscal 2019. Based upon the change in outlook, the Company determined that a quantitative goodwill impairment ~~charges have been taken against~~assessment was required. The quantitative assessment concluded that the carrying amount of the Pharmacy Services segment exceeded its fair value principally due to a reduction of the projected growth for its business compared to the growth assumptions used in the Company’s previous assessment. This resulted in a goodwill ~~or indefinitely-lived intangible assets. No~~impairment charge of $312,985 ($235,698 net of the related income tax benefit) during the thirteen-week period ended September 1, 2018, which adjusted the carrying amount of the Pharmacy Services segment to its fair value of $1,849,949. As of September 1, 2018 and March 3, 2018, the accumulated impairment losses for the Pharmacy Services segment was $574,712 and $261,727, respectively.
Below is a summary of the changes ~~were made to~~in the carrying amount of goodwill by segment for the ~~thirteen~~fiscal years ended September 1, 2018 and ~~thirty-nine week periods ended December 2, 2017.~~March 3, 2018:

Retail
Pharmacy

Pharmacy
Services

Total

Balance, March 3, 2018

$
43,492

$
1,377,628

$
1,421,120

Goodwill impairment

—

(312,985
)
(312,985
)
Balance, September 1, 2018

$
43,492

$
1,064,643

$
1,108,135

The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets as of ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017.~~3, 2018.

December 2, 2017

March 4, 2017

September 1, 2018

March 3, 2018

Gross
Carrying
Amount

Accumulated
Amortization

Net

Remaining
Weighted
Average
Amortization
Period

Gross
Carrying
Amount

Accumulated
Amortization

Net

Remaining
Weighted
Average
Amortization
Period

Gross
Carrying
Amount

Accumulated
Amortization

Net

Remaining
Weighted
Average
Amortization
Period

Gross
Carrying
Amount

Accumulated
Amortization

Net

Remaining
Weighted
Average
Amortization
Period

Favorable leases and other (a)

$
384,937

$
(318,634
)
$
66,303

7 years

$
386,636

$
(308,766
)
$
77,870

7 years

$
375,817

$
(317,972
)
$
57,845

7 years

$
379,355

$
(316,798
)
$
62,557

7 years

Prescription files

898,351

(795,003
)
103,348

3 years

894,330

(764,840
)
129,490

3 years

908,563

(817,427
)
91,136

3 years

900,111

(801,706
)
98,405

3 years

Customer relationships(a)

465,000

(157,639
)
307,361

15 years

465,000

(110,653
)
354,347

16 years

388,000

(172,010
)
215,990

13 years

465,000

(172,635
)
292,365

15 years

CMS license

57,500

(5,597
)
51,903

23 years

57,500

(3,872
)
53,628

24 years

57,500

(7,321
)
50,179

22 years

57,500

(6,172
)
51,328

23 years

Claims adjudication and other developed software

58,987

(20,509
)
38,478

5 years

58,995

(14,188
)
44,807

6 years

58,985

(26,816
)
32,169

4 years

58,985

(22,617
)
36,368

5 years

Trademarks

20,100

(4,891
)
15,209

8 years

20,100

(3,383
)
16,717

9 years

20,100

(6,399
)
13,701

7 years

20,100

(5,394
)
14,706

8 years

Backlog

11,500

(9,328
)
2,172

1 year

11,500

(6,453
)
5,047

2 years

11,500

(11,500
)
—

0 years

11,500

(10,286
)
1,214

1 years

Total finite

$
1,896,375

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

$
1,894,061

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

$
1,820,465

$
(1,359,445
)
$
461,020

$
1,892,551

$
(1,335,608
)
$
556,943

Trademarks

33,500

—

33,500

Indefinite

33,500

—

33,500

Indefinite

19,500

—

19,500

Indefinite

33,500

—

33,500

Indefinite

Total

$
1,929,875

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

$
1,927,561

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

$
1,839,965

$
(1,359,445
)
$
480,520

$
1,926,051

$
(1,335,608
)
$
590,443

(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.
During the thirteen week period ended September 1, 2018, due to the loss of access to a fertility drug for a direct to consumer program that the Pharmacy Services segment administered, the Company has recorded an impairment charge to reduce the book value of customer relationships by $48,205 (gross carrying amount of $77,000 less accumulated amortization of $28,795), and indefinite lived trademarks by $14,000, both of which charges are included within Goodwill and intangible asset impairment charges within the condensed consolidated statement of operations.

Also included in other non-current liabilities as of ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017~~3, 2018 are unfavorable lease intangibles with a net carrying amount of ~~$20,740~~$16,654 and ~~$23,703,~~$18,888, respectively. These intangible liabilities are amortized over their remaining lease terms at the time of acquisition. ~~Included in noncurrent liabilities held for sale as of December 2, 2017 and March 4, 2017 are unfavorable lease intangibles with a net carrying amount of $13,394 and $14,539, respectively.~~

Amortization expense for these intangible assets and liabilities was ~~$35,490~~$32,500 and ~~$112,772~~$67,900 for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~September 1, 2018, respectively. Amortization expense for these intangible assets and liabilities was ~~$41,654~~$36,321 and ~~$124,060~~$77,283 for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~September 2, 2017, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is ~~2018—$172,501;~~ 2019—$~~120,319;~~121,801; 2020—$~~96,399;~~95,500; 2021—$~~72,519~~72,591; 2022—$51,650 and ~~2022—~~2023—$~~50,715.~~36,113.
~~10.~~11. Indebtedness and Credit Agreements

Following is a summary of indebtedness and lease financing obligations at ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017:~~3, 2018:

December 2,
2017

March 4,
2017

Secured Debt:

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

$
1,906,692

$
2,405,082

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

466,751

465,833

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

497,992

497,569

Other secured

90

90

2,871,525

3,368,574

Guaranteed Unsecured Debt:

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

897,993

896,544

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

804,753

803,640

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

1,777,223

1,774,016

3,479,969

3,474,200

Unguaranteed Unsecured Debt:

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

293,499

293,375

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

127,277

127,229

420,776

420,604

Lease financing obligations

57,990

65,315

Total debt

6,830,260

7,328,693

Current maturities of long-term debt and lease financing obligations

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

$
6,807,998

$
7,307,358

September
1, 2018

March 3,
2018

Secured Debt:

Senior secured revolving credit facility due January 2020 ($1,335,000 and $0 face value less unamortized debt issuance costs of $8,633 and $13,076)

$
1,326,367

$
(13,076
)
Other secured

90

90

1,326,457

(12,986
)
Guaranteed Unsecured Debt:

9.25% senior notes due March 2020 ($0 and $902,000 face value plus unamortized premium of $0 and $1,400 and less unamortized debt issuance costs of $0 and $4,924)

—

898,476

6.75% senior notes due June 2021 ($0 and $810,000 face value less unamortized debt issuance costs of $0 and $4,877)

—

805,123

6.125% senior notes due April 2023 ($1,753,490 and $1,800,000 face value less unamortized debt issuance costs of $19,064 and $21,708)

1,734,426

1,778,292

1,734,426

3,481,891

Unguaranteed Unsecured Debt:

7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,377 and $1,460)

293,623

293,540

6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $675 and $707)

127,325

127,293

420,948

420,833

Lease financing obligations

45,115

52,554

Total debt

3,526,946

3,942,292

Current maturities of long-term debt and lease financing obligations

(18,668
)
(21,031
)
Long-term debt and lease financing obligations, less current maturities

$
3,508,278

$
3,921,261

Reconciliation of indebtedness included in continuing operations and discontinued operations:

December 2, 2017

Debt

Lease Financing
Obligations

Total Debt and
Lease Financing
Obligations

Balance, December 2, 2017 — per above table

$
6,772,270

$
57,990

$
6,830,260

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

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

2,985,790

51,918

3,037,708

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

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

$
2,985,700

$
31,654

$
3,017,354

March 4, 2017

Debt

Lease Financing
Obligations

Total Debt and
Lease Financing
Obligations

Balance, March 4, 2017 — per above table

$
7,263,378

$
65,315

$
7,328,693

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

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

3,235,978

54,823

3,290,801

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

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

$
3,235,888

$
37,204

$
3,273,092

March 3, 2018

Debt

Lease Financing
Obligations

Total Debt and
Lease Financing
Obligations

Balance, March 3, 2018 — per above table

$
3,889,738

$
52,554

$
3,942,292

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

(549,549
)
(1,108
)
(550,657
)
Total debt and lease financing obligations

3,340,189

51,446

3,391,635

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

(90
)
(20,671
)
(20,761
)
Long-term debt and lease financing obligations, less current maturities — continuing operations

$
3,340,099

$
30,775

$
3,370,874

(a)         In connection with the Sale, the Company ~~is estimating~~had estimated that the Sale ~~will provide total~~would generate excess cash proceeds of approximately $4,027,400 which ~~will~~would be used to repay outstanding indebtedness. ~~As such,~~During the twenty-six week period ended September 1, 2018, the Company ~~included $3,786,480 (total estimated~~has a use of cash for financing purposes of $1,343,793 in its discontinued operations and, based on refinements to its calculations, reduced its estimate of excess cash proceeds ~~of $4,027,400 less proceeds received through~~by approximately $24,500 and reclassified that amount to assets held and used. Consequently, the ~~quarter ended December 2, 2017 of $240,900)~~Company has classified $0 and ~~$4,027,400~~$549,549 of estimated cash proceeds ~~as of March 4, 2017 as~~to be used for debt repayment ~~of outstanding indebtedness that has been included in~~to liabilities held for ~~sale.~~sale as of September 1, 2018 and March 3, 2018, respectively. Additionally, as part of the Sale, the Company will be relieved of approximately ~~$6,072~~$0 and ~~$10,492,~~$1,108, respectively, of capital lease obligations as of ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017.~~3, 2018. These amounts are also reflected as liabilities held for sale. Please see Note 3 for additional details.
Credit Facility

The Company’s Amended and Restated Senior Secured Credit Facility has a borrowing capacity of ~~$3,700,000~~$2,700,000 and matures in January 2020. Borrowings under the revolver bear interest at a rate per annum between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respect to Eurodollar borrowings and (ii) the alternate base rate plus 0.50% and the alternate base rate plus 1.00% with respect to ABR borrowings, in each case, based upon the Average Revolver Availability (as defined in the Amended and Restated Senior Secured Credit Facility). The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the revolver, depending on the Average Revolver Availability (as defined in the Amended and Restated Senior Secured Credit Facility). Amounts drawn under the revolver become due and payable on January 13, 2020.

The Company’s ability to borrow under the revolver is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At ~~December 2, 2017,~~September 1, 2018, the Company had ~~$1,925,000~~$1,335,000 of borrowings outstanding under the revolver and had letters of credit outstanding against the revolver of ~~$59,343~~$55,780 which resulted in additional borrowing capacity of ~~$1,715,657.~~$1,309,220.

The Amended and Restated Senior Secured Credit Facility restricts the Company and the Subsidiary Guarantors (as defined herein) from accumulating cash on hand, and under certain circumstances, requires the funds in the Company’s deposit accounts to be applied first to the repayment of outstanding revolving loans under the Amended and Restated Senior Secured Credit Facility and then to be held as collateral for the senior obligations.

The Amended and Restated Senior Secured Credit Facility allows the Company to have outstanding, at any time, up to $1,500,000 in secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended and Restated Senior Secured Credit Facility and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b) the latest maturity date of any Term Loan or Other Revolving Loan (each as defined in the Amended and Restated Senior Secured Credit Facility) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of “Escrow Notes” in the Amended and Restated Senior Secured Credit Facility). Subject to the limitations described in clauses (a) and (b) of the immediately preceding sentence, the Amended and Restated Senior Secured Credit Facility additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended and Restated Senior Secured Credit Facility) is not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended and Restated Senior Secured Credit Facility also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Amended and Restated Senior Secured Credit Facility also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended and Restated Senior Secured Credit Facility is not in default and the Company maintains availability under its revolver of more than $365,000.

The Amended and Restated Senior Secured Credit Facility has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (a) on any date on which availability under the revolver is less than $200,000 or (b) on the third consecutive business day on which availability under the revolver is less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000. As of ~~December 2, 2017,~~September 1, 2018, the Company had availability under its revolver of ~~$1,715,657,~~$1,309,220, its fixed
charge coverage ratio was greater than 1.00 to 1.00, and the Company was in compliance with the senior secured credit facility’s financial covenant. The Amended and Restated Senior Secured Credit Facility also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, sale of assets, mergers and acquisitions and the granting of liens.

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

The Company also has two second priority secured term loan facilities, the Tranche 1 Term Loan and the Tranche 2 Term Loan. The Tranche 1 Term Loan matures on August 21, 2020 and currently bears interest at a rate per annum equal to LIBOR plus 4.75% with a LIBOR floor of 1.00%, if the Company chooses to make LIBOR borrowings, or at Citibank’s base rate plus 3.75%. The Tranche 2 Term Loan matures on June 21, 2021 and currently bears interest at a rate per annum equal to LIBOR plus 3.875% with a LIBOR floor of 1.00%, if the Company chooses to make LIBOR borrowings, or at Citibank’s base rate plus 2.875%.
With the exception of EIC, substantially all of Rite Aid Corporation’s 100 percent owned subsidiaries guarantee the obligations under the Amended and Restated Senior Secured Credit Facility ~~second priority secured term loan facilities,~~ and unsecured guaranteed notes. The Amended and Restated Senior Secured Credit Facility ~~and second priority secured term loan~~
~~facilities are~~is secured, on a senior ~~or second~~ priority basis, ~~as applicable,~~ by a lien on, among other things, accounts receivable, inventory and prescription files of the Subsidiary Guarantors. The subsidiary guarantees related to the Company’s Amended and Restated Senior Secured Credit Facility ~~and second priority secured term loan facilities~~ and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several, and there are no restrictions on the ability of the Company to obtain funds from its subsidiaries. The Company has no independent assets or operations. Additionally, prior to the Acquisition, the subsidiaries, including joint ventures, that did not guarantee the Amended and Restated Senior Secured Credit Facility ~~the credit facility, second priority secured term loan facilities~~ and applicable notes, were minor. Accordingly, condensed consolidating financial information for the Company and subsidiaries is not presented for those periods. Subsequent to the Acquisition, other than EIC, the subsidiaries, including joint ventures, that do not guarantee the credit facility ~~second priority secured term loan facilities~~ and applicable notes, are minor. As such, condensed consolidating financial information for the Company, its guaranteeing subsidiaries and non-guaranteeing subsidiaries is presented for those periods subsequent to the Acquisition. See Note 1516 “Guarantor and Non-Guarantor Condensed Consolidating Financial Information” for additional disclosure.

~~Maturities~~Fiscal 2018 and 2019 Transactions

During January 2018, the Company used proceeds from the Asset Sale to repay and retire all of its outstanding second lien $470,000 tranche 1 term loan and $500,000 tranche 2 term loan principal (the “Second Lien Term Loan Prepayment”). During February 2018, the Company reduced the borrowing capacity on its Amended and Restated Senior Secured Credit Facility from $3,700,000 to $3,000,000 (which was subsequently further reduced as described below). In connection with the transactions, the Company recorded a loss on debt retirement of $8,180, which included interest and unamortized debt issuance costs. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows of discontinued operations.
On February 27, 2018, the Company announced that it had commenced an offer to purchase up to $900,000 of the outstanding 9.25% senior notes due 2020 (the “9.25% Notes”), the 6.75% senior notes due 2021 (the “6.75% Notes”) and the 6.125% Senior Notes due 2023 (the “6.125% Notes”), pursuant to the asset sale provisions of the indentures of such notes. On March 29, 2018, the Company accepted for payment, pursuant to its offer to purchase, $3,454 principal amount of the 9.25% Notes, representing 0.38% of the outstanding principal amount of the 9.25% Notes, $3,471 principal amount of the 6.75% Notes, representing 0.43% of the outstanding principal amount of the 6.75% Notes, and $41,751 principal amount of the 6.125% Notes, representing 2.32% of the outstanding principal amount of the 6.125% Notes. In connection therewith, the Company recorded a loss on debt retirement of $49 which included unamortized debt issuance costs, partially offset by unamortized discount. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows of discontinued operations. The debt repayment and related loss on debt retirement of $498 for the 6.125% Notes is included in the results of operations and cash flows of continuing operations.
On March 13, 2018, the Company issued a notice of redemption for all of the 9.25%. Notes that were outstanding on April 12, 2018, pursuant to the terms of the indenture of the 9.25% Notes. On April 12, 2018, the Company redeemed 100% of the remaining outstanding 9.25% Notes. In connection therewith, the Company recorded a loss on debt retirement of $3,422 which included unamortized debt issuance costs, partially offset by unamortized discount. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows of discontinued operations.
On April 19, 2018, the Company announced that it had commenced an offer to purchase up to $700,000 of its outstanding 6.75% Notes and its 6.125% Notes pursuant to the asset sale provisions of such indentures. On May 21, 2018, the Company accepted for payment, pursuant to its offer to purchase, $1,360 aggregate principal amount of the 6.75% Notes and $4,759 aggregate principal amount of the 6.125% Notes. The debt repayment and related loss on debt retirement of $8 for the 6.75% Notes is included in the results of operations and cash flows of discontinued operations. The debt repayment and related loss on debt retirement of $56 for the 6.125% Notes is included in the results of operations and cash flows of continuing operations.
On April 29, 2018, the Company further reduced the borrowing capacity on its Amended and Restated Senior Secured Credit Facility from $3,000,000 to $2,700,000. In connection therewith, the Company recorded a loss on debt retirement of $1,091, which included unamortized debt issuance costs. The loss on debt retirement is included in the results of operations and cash flows of discontinued operations.
On June 25, 2018, the Company redeemed the remaining $805,169 of its 6.75% Notes, which resulted in a loss on debt retirement of $18,075. The loss on debt retirement is included in the results of operations and cash flows of discontinued operations.
Maturities
The aggregate annual principal payments of long-term debt for the remainder of fiscal ~~2018~~2019 and thereafter are as follows: ~~2018—~~2019—$90; ~~2019—~~2020—$1,335,000; 2021—$0; ~~2020—$1,925,000; 2021—$1,372,000;~~ 2022—$~~1,310,000~~0; 2023—$0 and ~~$2,223,000~~$2,176,490 thereafter. ~~The proceeding amounts do not reflect repayments associated with excess proceeds from the Sale~~.
~~11. Stock Options and Stock Awards~~
The Company recognizes share-based compensation expense over the requisite service period of the award, net of an estimate for the impact of forfeitures. Operating results for the thirty-nine week periods ended December 2, 2017 and November 26, 2016 include $22,549 and $36,766, respectively, of compensation costs related to the Company’s stock-based compensation arrangements.
Beginning in fiscal 2015, the Company provided certain of its associates with performance based incentive plans under which the associates will receive a certain number of shares of the Company’s common stock based on the Company meeting certain financial and performance goals. During fiscal 2018, the Company issued performance units to certain of its associates. The performance units will be settled in cash based on the actual performance of the Company relative to certain financial performance goals and the stock price upon vesting. During the thirty-nine week periods ended December 2, 2017 and November 26, 2016, the Company incurred $3,482 and $14,448 related to these performance based incentive plans, respectively, which is recorded as a component of stock-based compensation expense.
~~The total number and type of newly awarded grants and the related weighted average fair value for the thirty-nine week periods ended December 2, 2017 and November 26, 2016 are as follows:~~

December 2, 2017

November 26, 2016

Shares

Weighted
Average
Fair Value

Shares

Weighted
Average
Fair Value

Stock options granted

1,000

$
1.08

—

$
N/A

Restricted stock awards granted

13,856

$
2.82

3,613

$
7.73

Total awards

14,856

3,613

Typically, stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees. Restricted stock awards typically vest in equal annual installments over a three-year period.
~~The Company calculates the fair value of stock options using the Black- Scholes-Merton option pricing model. The following assumptions were used in the Black-Scholes-Merton option pricing model:~~
~~Thirty-Nine Week Period~~
~~Ended~~
~~December 2,~~
~~2017~~
~~November 26,~~
~~2016~~
~~Expected stock price volatility~~
58
%
~~N/A~~
~~Expected dividend yield~~
0
%
~~N/A~~
~~Risk-free interest rate~~
~~1.9~~
%
~~N/A~~
~~Expected option life~~
~~5.5 years~~
~~N/A~~
As of December 2, 2017, the total unrecognized pre-tax compensation costs related to unvested stock options and restricted stock awards granted, net of estimated forfeitures and the weighted average period of cost amortization are as follows:

December 2, 2017

Unvested
stock
options

Unvested
restricted
stock

Unvested
performance
shares

Unrecognized pre-tax costs

$
7,057

$
38,971

$
12,253

Weighted average amortization period

1.62 years

2.1 years

2.3 years

12. Retirement Plans

Net periodic pension expense recorded in the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ for the Company’s defined benefit plan includes the following components:

Defined Benefit
Pension Plan

Defined Benefit
Pension Plan

Defined Benefit
Pension Plan

Defined Benefit
Pension Plan

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

Thirteen Week Period Ended

Twenty-Six Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

Service cost

$
346

$
292

$
1,038

$
876

$
312

$
346

$
624

$
692

Interest cost

1,603

1,621

4,809

4,863

1,578

1,603

3,156

3,206

Expected return on plan assets

(1,147
)
(1,142
)
(3,441
)
(3,426
)

(1,435
)
(1,147
)
(2,869
)
(2,294
)
Amortization of unrecognized prior service cost

—

—

—

—

—

—

—

—

Amortization of unrecognized net loss

856

1,132

2,569

3,396

507

857

1,015

1,713

Net periodic pension expense

$
1,658

$
1,903

$
4,975

$
5,709

$
962

$
1,659

$
1,926

$
3,317

During the thirteen and ~~thirty-nine~~twenty-six week ~~period~~periods ended ~~December 2, 2017~~September 1, 2018 the Company contributed ~~$8,210~~$991 and $1,804, respectively, to the Defined Benefit Pension Plan. During the remainder of fiscal ~~2018,~~2019, the Company expects to contribute ~~$813~~$900 to the Defined Benefit Pension Plan.

13. Segment Reporting

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

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

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

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

Retail
Pharmacy

Pharmacy
Services

Eliminations (1)

Consolidated

September 1, 2018:

Total Assets

$
5,503,071

$
2,675,295

$
(12,698
)
$
8,165,668

Goodwill

43,492

1,064,643

—

1,108,135

Additions to property and equipment and intangible assets

105,369

7,715

—

113,084

March 3, 2018:

Total Assets

$
6,089,343

$
2,954,953

$
(54,969
)
$
8,989,327

Goodwill

43,492

1,377,628

—

1,421,120

Additions to property and equipment and intangible assets

199,437

15,327

—

214,764

(1)                                 As of September 1, 2018 and March 3, 2018, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $0 and $38,713, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $12,698 and $16,256, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products.
The following table is a reconciliation of the Company’s business segments to the condensed consolidated financial statements for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, ~~2017 and November 26, 2016:~~2017:

Retail
Pharmacy

Pharmacy
Services

Intersegment
Eliminations (1)

Consolidated

Thirteen Week Period Ended

December 2, 2017:

Revenues

$
3,959,002

$
1,445,140

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

Gross Profit

1,087,888

98,835

—

1,186,723

Adjusted EBITDA (2)

88,886

40,363

—

129,249

November 26, 2016:

Revenues

$
4,082,278

$
1,645,835

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

Gross Profit

1,141,794

103,057

—

1,244,852

Adjusted EBITDA (2)

138,903

52,431

—

191,334

Thirty-Nine Week Period Ended

December 2, 2017:

Revenues

$
11,833,195

$
4,451,212

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

Gross Profit

3,203,270

307,069

—

3,510,339

Adjusted EBITDA (2)

264,253

138,237

—

402,490

November 26, 2016:

Revenues

$
12,319,445

$
4,883,070

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

Gross Profit

3,426,265

289,384

—

3,715,649

Adjusted EBITDA (2)

428,864

143,616

—

572,480

Retail
Pharmacy

Pharmacy
Services

Intersegment
Eliminations (1)

Consolidated

Thirteen Week Period Ended

September 1, 2018:

Revenues

$
3,911,512

$
1,561,811

$
(51,961
)
$
5,421,362

Gross Profit

1,051,637

109,514

—

1,161,151

Adjusted EBITDA (2)

103,618

44,963

—

148,581

September 2, 2017:

Revenues

$
3,901,842

$
1,492,831

$
(49,662
)
$
5,345,011

Gross Profit

1,058,411

103,262

—

1,161,673

Adjusted EBITDA (2)

87,627

49,275

—

136,902

Twenty-Six Week Period Ended

September 1, 2018:

Revenues

$
7,809,277

$
3,104,573

$
(103,998
)
$
10,809,852

Gross Profit

2,121,094

208,806

—

2,329,900

Adjusted EBITDA (2)

207,747

78,826

—

286,573

September 2, 2017:

Revenues

$
7,874,193

$
3,006,072

$
(98,731
)
$
10,781,534

Gross Profit

2,115,382

208,234

—

2,323,616

Adjusted EBITDA (2)

165,078

97,874

—

262,952

(1)                                 Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis. In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32,438 and $97,560 for the thirteen and thirty-nine week periods ended December 2, 2017 and $32,381 and $97,301 for the thirteen and thirty-nine week periods ended November 26, 2016. Please see Note 3 for additional information.

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

The following is a reconciliation of net (loss) income to Adjusted EBITDA for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, ~~2017 and November 26, 2016:~~2017:

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net (loss) income — continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

Interest expense

50,308

50,304

152,165

146,674

Income tax (benefit) expense

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

(3,824
)
Depreciation and amortization expense

95,764

101,953

292,448

304,460

LIFO charge

6,784

8,373

20,393

25,266

Lease termination and impairment charges

3,939

7,199

11,090

20,203

Walgreens Boots Alliance merger termination fee

—

—

(325,000
)
—

Other

6,697

4,577

27,985

50,567

Adjusted EBITDA

$
129,249

$
191,334

$
402,490

$
572,480

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

Retail
Pharmacy

Pharmacy
Services

Eliminations (2)

Consolidated

December 2, 2017:

Total Assets

$
8,361,424

$
3,146,288

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

Goodwill

43,492

1,639,355

—

1,682,847

Additions to property and equipment and intangible assets

150,043

10,974

—

161,017

March 4, 2017:

Total Assets

$
8,664,216

$
3,087,143

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

Goodwill

43,492

1,639,355

—

1,682,847

Additions to property and equipment and intangible assets(1)

281,072

12,725

—

293,797

Thirteen Week
Period Ended

Twenty-Six Week
Period Ended

September 1,
2018

September 2,
2017(a)

September 1,
2018

September 2,
2017(a)

(dollars in thousands)

Net (loss) income

$
(352,348
)
$
188,360

$
(394,075
)
$
152,323

Interest expense

56,233

50,857

119,025

101,857

Income tax (benefit) expense

(106,559
)
117,450

(116,056
)
105,329

Depreciation and amortization expense

89,743

95,655

184,272

196,684

LIFO charge

3,358

3,436

13,324

13,609

Lease termination and impairment charges

39,609

3,113

49,468

7,151

Goodwill and intangible asset impairment charges

375,190

—

375,190

—

Loss on debt retirements, net

—

—

554

—

Merger and Acquisition-related costs

19,031

9,632

26,219

10,848

Stock based compensation expense

5,215

6,324

10,246

15,362

Inventory write-downs related to store closings

1,300

1,348

5,133

3,766

Litigation settlement

18,000

—

18,000

—

Gain on sale of assets, net

(4,965
)
(14,951
)
(10,824
)
(20,828
)
Walgreens Boots Alliance merger termination fee

—

(325,000
)
—

(325,000
)
Other

4,774

678

6,097

1,851

Adjusted EBITDA

$
148,581

$
136,902

$
286,573

$
262,952

~~(1)~~(a)         ~~Includes additions to property and equipment and intangible assets for~~During the ~~fifty-three~~thirteen week period ended ~~March 4, 2017.~~
~~(2)~~                                 AsSeptember 1, 2018, the Company revised its definition of ~~December~~Adjusted EBITDA to no longer exclude the impact of revenue deferrals related to its customer loyalty program and further revised its disclosure by presenting certain amounts previously included within Other as separate reconciling items. Consequently, the Company revised Adjusted EBITDA for the thirteen and twenty-six week periods ended September 2, 2017 to conform with the revised definition and March 4, 2017, intersegment eliminations include netting of the Pharmacy Services segment long-term deferred tax liability of $154,119 and $140,865, respectively, against the Retail Pharmacy segment long-term deferred tax asset for consolidation purposespresent separate reconciling items previously included in accordance with ASC 740, and intersegment accounts receivable of $12,979 and $16,742, respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products.Other.

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

Legal Matters and Regulatory Proceedings

The Company is involved in legal proceedings and is subject to investigations, inspections, claims, audits, inquiries, and similar actions by governmental authorities arising in the ordinary course of its business, including, without limitation, the matters described below. The Company records accruals for outstanding legal matters and applicable regulatory proceedings when it believes it is probable that a loss will be incurred, and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters and regulatory proceedings that could affect the amount of any existing accrual and developments that would make a loss contingency both probable and reasonably estimable, and as a result, warrant an account. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. None of the Company’s accruals for outstanding legal matters or regulatory proceedings are material individually or in the aggregate to the Company’s consolidated financial position.

The Company’s contingencies are subject to significant uncertainties, many of which are beyond the Company’s control, including, among other factors: (i) proceedings are in early stages; (ii) whether class or collective action status is sought and the likelihood of a class being certified; (iii) the outcome of pending appeals or motions; (iv) the extent of potential damages, fines or penalties, which are often unspecified or indeterminate; (v) the impact of discovery on the matter; (vi) whether novel or unsettled legal theories are at issue; (vii) there are significant factual issues to be resolved; and/or (viii) in the case of certain government agency investigations, whether a ~~sealed~~ qui tam lawsuit (“whistleblower” action) has been filed and whether the government agency makes a decision to intervene in the lawsuit following investigation. While the Company cannot predict the outcome of any of the contingencies, the Company’s management does not believe that the outcome of any of these legal matters or regulatory proceedings will be material to the Company’s consolidated financial position. It is possible, however, the Company’s results of operations or cash flows could be materially affected by unfavorable outcomes in outstanding legal matters or regulatory proceedings.

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

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

On ~~March 17, 2017, the~~ ~~Hering~~ plaintiffs filed a motion to lift the stay for the purpose of filing a proposed amended complaint. Defendants opposed the motion, and briefing concluded on April 17, 2017. The proposed amended complaint asserted state law breach of fiduciary duty claims against the Individual Defendants, a claim of aiding and abetting the alleged breaches of fiduciary duty against Rite Aid, WBA and Victoria, as well as claims for violations of Section 14(a) of the Exchange Act and SEC
Rule 14a-9 against the Rite Aid Defendants, WBA and Victoria, claims for violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against the Rite Aid Defendants, WBA, Victoria and certain WBA executives, and a claim for violations of Section 20(a) of the Exchange Act against the Individual Defendants, WBA and Victoria. August 4, 2017, the Pennsylvania District Court entered an order lifting the stay, noting that the original claims in this matter ~~are~~were now moot and directed the plaintiffs to file a motion for leave to amend the complaint, with brief in support thereof, ~~on or before September 15, 2017~~ which ~~deadline~~motion was subsequently ~~extended to~~filed on September 22, 2017. OnAlso on September 22, 2017, the lead plaintiffs gave notice that plaintiffs Don Michael Hussey and Joanna Pauli Hussey were withdrawing as lead plaintiffs, and that plaintiff Jerry Hering (the ~~Lead Plaintiff)~~“Lead Plaintiff”) would continue to represent the proposed class in the Hering action going forward. ~~That same day, Lead Plaintiff filed a motion for leave to file an amended complaint, which~~On November 27, 2017, the Pennsylvania District Court granted ~~on November 27, 2017. On December 11, 2017,~~Lead Plaintiff’s motion to amend the complaint, and Lead Plaintiff filed the amended complaint (the ~~Amended Complaint), which alleges a claim~~“Amended Complaint”) on December 11, 2017. The amended complaint alleged claims for violations of ~~Section~~Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 ~~and a claim for violations of Section 20(a) of the Exchange Act~~ against the Rite Aid Defendants, WBA, and certain WBA executives. ~~The~~On February 14, 2018, the Rite Aid Defendants ~~intend to move~~moved to dismiss the Amended ~~Complaint.~~Complaint, which the Pennsylvania District Court granted on July 11, 2018, dismissing all claims alleged against the Rite Aid Defendants.

~~The~~In connection with the then proposed merger between the Company ~~has been named in~~and Albertsons Companies, Inc. (“ACI”), on April 24, 2018, a ~~collective and~~Rite Aid stockholder filed a putative class action lawsuit in the Court of Chancery of the State of Delaware against Rite Aid, ACI, Ranch Acquisition Corp. (Merger Sub I), Ranch Acquisition II LLC (Merger Sub II, together with ACI and Merger Sub I, the ACI defendants) and each of the Rite Aid directors (the Director defendants, together with Rite Aid, the Rite Aid defendants), Del. C.A. No. 2018-0305-AGB (~~Indergit~~Akile v. Rite Aid ~~Corporation,~~Corp., et ~~al.~~al). Plaintiff contended that Rite Aid stockholders had appraisal rights under Section 262 of the DGCL. Plaintiff alleged breach of fiduciary duty claims against the Director defendants for their alleged failure to provide alleged statutory appraisal rights under Delaware law and for allegedly falsely informing Rite Aid stockholders that they would not have appraisal rights. Plaintiff further contended that the proxy statement/prospectus related to the proposed merger, and which was filed on April 6, 2018, was deficient under Section 262(d)(1) of the DGCL for failure to inform stockholders of their alleged appraisal rights. Plaintiff sought declarations from the Court of Chancery that the action was a proper class action and that the Director defendants breached their fiduciary duties by failing to adequately inform class members of their appraisal rights under Delaware law, to enjoin the then proposed transaction from closing until such time as class members were afforded the ability to seek appraisal of their shares, or otherwise permit class members to petition the Court of Chancery for appraisal, and attorneys’ fees, expenses, and costs to plaintiff. On May 9, 2018, the Court of Chancery denied plaintiff’s motion to expedite and declined to schedule a preliminary injunction hearing, ruling that plaintiff failed to state a colorable claim. On August 13, 2018, the parties filed a Stipulation and Proposed Order of Voluntary Dismissal Pursuant to Court of Chancery Rule 41(1)(a)(ii), ~~pending~~which the Court of Chancery entered on August 14, 2018.
Between June 29, 2018, and August 3, 2018, three purported stockholders of the Company each separately filed a Verified Complaint to Compel Inspection of Books and Records under 8 Del. C. §220 in the ~~United States District~~Delaware Court of Chancery against the Company, seeking to inspect books and records in order to determine whether wrongdoing or mismanagement has taken place such that it would be appropriate to file claims for breach of fiduciary duty, and to investigate the ~~Southern District~~independence and disinterestedness of ~~New York, filed purportedly on behalf of current and former store managers working in~~ the Company’s ~~stores at various locations around~~directors with respect to the ~~country. The lawsuit alleges that~~then proposed merger with ACI. On August 9, 2018, one of the ~~Company failed to pay overtime to store managers as required under the FLSA~~purported stockholders filed a Notice and under certain New York state statutes. The lawsuit also seeks other relief, including liquidated damages, attorneys’ fees, costs and injunctive relief arising out of state and federal claims for overtime pay. On April 2, 2010,Proposed Order Voluntarily Dismissing Action, which order the Court ~~conditionally certified~~entered on August 10, 2018. On September 6, 2018, another of the purported stockholders filed a ~~nationwide collective group of individuals who worked for the Company as store managers since March 31, 2007. The Court ordered that~~ Notice of ~~the~~ ~~Indergit~~ ~~action be sent to the purported members of the collective group (approximately 7,000 current and former store managers) and approximately 1,550 joined the~~ ~~Indergit~~ action. Discovery as to certification issues has been completed. On September 26, 2013, the Court granted Rule 23 class certification of the New York store manager claims as to liability only, but denied it as to damages, and denied the Company’s motion for decertification of the nationwide collective action claims.Dismissal. The Company filed a motion ~~seeking reconsideration of~~to dismiss the Court’s September 26, 2013 decision which motion was denied in June 2014. The Company subsequently filed a petition for an interlocutory appeal of the Court’s September 26, 2013 ruling with the U. S. Court of Appeals for the Second Circuit which petition was denied in September 2014. Notice of the Rule 23 class certification as to liability only has been sent to approximately 1,750 current and former store managers in the state of New York. Discovery related to the merits of the claims is ongoing. On January 12, 2017, the parties reached a settlement in principle of this matter, for an immaterial amount of money, which is subject to preliminary and final approval by the court. Onremaining action on August 3, 2017, the court entered an order granting plaintiff’s unopposed motion for preliminary approval of the settlement and notice of the settlement was issued to putative class members on September 7, 2017. A final approval hearing is scheduled to be heard on January 11,20, 2018. In the event the settlement does not receive final approval by the court, the litigation may resume. If such occurs, the Company presently is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit. The Company’s management believes, however, that this lawsuit is without merit and is vigorously defending this lawsuit.

The Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California wage-and-hour laws, rules and regulations pertaining primarily to failure to pay overtime, failure to pay for missed meals and rest periods, failure to reimburse business expenses and failure to provide employee seating (the “California Cases”). Some of the California Cases purport or may be determined to be class actions and seek substantial damages and penalties. The single-plaintiff and multi-plaintiff California Cases regarding violations of wage-and-hour laws, failure to pay overtime and failure to pay for missed meals and rest periods, in the aggregate, seek substantial damages. The Company believes that its defenses and assertions in the California Cases, as well as other ~~legal proceedings,~~lawsuits, have merit. The Company has aggressively challenged the merits of the lawsuits and, where applicable, the allegations that the ~~cases~~lawsuits should be certified as class or representative actions. Additionally, at this time the Company is not able to predict either the outcome of or estimate a potential range of loss with respect to the California Cases and is vigorously defending them.

In the employee seating ~~case~~lawsuit (Hall v. Rite Aid Corporation, San Diego County Superior Court), the parties reached a class action settlement for $18 million plus institution of a two-year pilot seating program for front-end checkstands. On September 14, 2018, the Court ~~in October 2011,~~ granted the plaintiff’s motion for class certification. The Company filed its motion for decertification, which motion was granted in November 2012. Plaintiff subsequently appealed the Court’s order which appeal was granted in May 2014. The Company filed a petition for reviewpreliminary approval of the ~~appellate court’s decision with the California Supreme Court, which petition was denied in August 2014. Proceedings in the~~ ~~Hall~~ case were stayed pending a decision by the California Supreme Court in two similar cases. That decision was rendered on April 4, 2016. A status conference in the case was held on November 18, 2016, at which time the court lifted the stay and scheduled the casesettlement. The hearing for ~~trial on January 26, 2018. Thereafter, the Court continued the trial to March 9, 2018, and~~final approval is scheduled to ~~hear Rite Aid’s pending motion for summary judgment~~occur on ~~February 2, 2018.~~January 11, 2019.
Following service of subpoenas on the Company in 2011 and 2013 by the United States Attorney’s Office for the Eastern District of Michigan (“USAO”) and the State of Indiana’s Office of the Attorney General, respectively, the Company cooperated with inquiries regarding the relationship of Rite Aid’s Rx Savings Program to the reporting of usual and customary charges to publicly funded health programs. In January 2017, the USAO, 18 states and the District of Columbia declined to intervene in a sealed False Claims Act (“FCA”) ~~action~~lawsuit filed by qui tamplaintiff Azam Rahimi (“Relator”) in the District Court for the Eastern District of
Michigan. On January 19, 2017, the court unsealed Relator’s Second Amended Complaint against the Company; it alleges that the Company failed to report Rx Savings prices as its usual and customary charges under the Medicare Part D program and to federal and state Medicaid programs in 18 states and the District of Columbia; and that the Company is thus liable under the federal FCA and similar state statutes. In its ruling on the Company’s motion to dismiss the complaint, the Court held that Relator’s complaint was deficient, but allowed Relator the opportunity to re-plead. Relator filed a Third Amended Complaint on May 11, 2018. The Company ~~has~~ filed a motion to dismiss the ~~complaint,~~Third Amended Complaint on May 25, 2018, which is pending. At this stage of the proceedings, the Company is not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit and is vigorously defending this lawsuit.

On April 26, 2012, the Company received an administrative subpoena from the U.S. Drug Enforcement Administration (“DEA”), Albany, New York District Office, requesting information regarding the Company’s sale of products containing pseudoephedrine (“PSE”). In April 2012, it also received a communication from the U.S. Attorney’s Office (“USAO”) for the Northern District of New York concerning an investigation of possible civil violations of the Combat Methamphetamine Epidemic Act of 2005 (“CMEA”). Additional subpoenas were issued in 2013, 2014, and 2015 seeking broader documentation regarding PSE sales and recordkeeping requirements. Assistant U.S. Attorneys from the Northern and Eastern Districts of New York and the Southern District of West Virginia are currently investigating, but no lawsuits ~~or charges~~ have been filed. Between September 2015 and August 2017, the Company received several grand jury subpoenas from the U.S. District Court for the Southern District of West Virginia seeking additional information in connection with the investigation of violations of the CMEA and/or the Controlled Substances Act (“CSA”). Violations of the CMEA ~~or the CSA~~ could result in the imposition of administrative ~~civil~~ and/or ~~criminal~~civil penalties against the Company. The Company ~~had~~has entered into tolling agreements with the United States, ~~with respect to both the civil~~ and ~~grand jury investigations, which expired on June 30, 2017 and August 3, 2016, respectively. There was no request to renew the agreements. Discussions~~discussions have been held to attempt to resolve these matters with those USAOs and the Department of Justice, but whether any agreements can be reached and on what terms is uncertain. While the Company’s management cannot predict the outcome of these matters, it is possible that the Company’s results of operations or cash flows could be materially affected by an unfavorable resolution. At this stage of the investigation, ~~Rite Aid~~the Company is not able to predict the outcome of the ~~investigations.~~investigation.
In December 2017, Rite Aid executed a non-prosecution agreement with the United States Attorney’s Office for the Southern District of West Virginia (countersigned by the government in January 2018), which concluded the previous criminal investigation into Rite Aid’s PSE sales. Pursuant to that agreement, the government agreed not to bring any criminal charges against Rite Aid, and Rite Aid agreed to pay an immaterial amount of money as restitution. The civil investigation is ongoing.

In June 2013, the Company was served with a Civil Investigative Demand (“CID”) by the United States Attorney’s Office for the Eastern District of California (the “USAO”) regarding (1) the Company’s Drug Utilization Review (“DUR”) and prescription dispensing protocol; and (2) the dispensing of drugs designated as “Code 1” by the State of California. The Company cooperated with the investigation, researched the government’s allegations, and refuted the government’s position. The Company produced documents including certain prescription files related to Code 1 drugs to the USAO’s office and the State of California Department of Justice’s Bureau of Medical Fraud and Elder Abuse (“CADOJ”). In August 2014, the USAO and 8 states’ attorneys general declined to intervene in a California False Claim Act (“FCA”) action (“Action”) filed under seal in the Eastern District of California by qui tam plaintiff Loyd F. Schmuckley (“Relator”) based on DUR and Code 1 allegations. In July 2016, the Commonwealth of Massachusetts and the District of Columbia also declined to intervene in the Action. On May 15, 2017, Relator and the CADOJ stipulated to dismiss all DUR-related claims and 18 other state-based claims. On September 21, 2017, the CADOJ filed a sealed complaint-in-intervention in the Action, asserting causes under the FCA, for unjust enrichment and for payment by mistake related to the Code 1 allegations. The Action was unsealed on September 26, 2017. On September 28, 2017, Relator filed a First Amended Complaint under the FCA also concerning the Code 1 allegations. The ~~Company’s deadline to respond to the CADOJ’s and Relator’s complaints is currently scheduled for January 2018. At this stage of the proceedings, the~~ Company ~~is not able to either predict the outcome of this matter or estimate a potential range of loss with respect to this matter and is vigorously defending this lawsuit.~~
~~Relator, Matthew Omlansky,~~ filed a ~~qui tam~~ action, State of California ex rel. Matthew Omlansky v. Rite Aid Corporation, on behalf of the State of California against Rite Aid in the Superior Court of the State of California. In his Complaint, Relator alleges that Rite Aid violated the California False Claims Act by (i) failing to comply with California rules governing the Company’s reporting of its usual and customary prices; (ii) failing to dispense the least expensive equivalent generic drug in certain circumstances, in violation of applicable regulations; and (iii) dispensing, and seeking reimbursement for, restricted brand name drugs without prior approval. Relator filed his Second Amended Complaint on April 19, 2016. On October 5, 2016, Rite Aid’s demurrer to the Second Amended Complaint was granted, with leave for Relator to file an amended complaint. Relator filed his Third Amended Complaint to which Rite Aid filed a second demurrer, which the Court granted with leave for Relator to amend on April 20, 2017. Relator filed his Fourth Amended Complaint on May 1, 2017. On July 7, 2017, the Company’s demurrer to the Fourth Amended Complaint was sustained without leave for Relator to amend. The court entered a final judgment of dismissal of each of Relator’s claims on August 3, 2017. Relator’s deadline to appeal the judgment passed on October 9, 2017. Relator filed an untimely notice of appeal in the action on October 13, 2017, and thereafter moved the California Court of Appeal for the Third District to construe an October 5, 2017 notice of appeal erroneously filed in another action brought by Relator as a timely appeal of this action. The Court of Appeal denied Relator’s motion ~~and the Company has moved~~ to dismiss Relator’s and CADOJ’s respective complaints in January 2018, the ~~attempted appeal.~~hearing was held on March 23, 2018. On September 5, 2018, the court issued an order denying the motion to dismiss. At this stage of the proceedings, the Company is not able to either predict the outcome of this matter or estimate a potential range of loss with respect to this matter and is vigorously defending this lawsuit.

The State of Mississippi, by and through its Attorney General, filed a First Amended Complaint against the Company and various purported related entities on September 27, 2016 alleging violations of the Mississippi Medicaid Fraud Control Act, violations
of the Mississippi Unfair and Deceptive Trade Practices Act, fraud and unjust enrichment. The Complaint alleges the Company failed to accurately report usual and customary prices to Mississippi’s Division of Medicaid. On November 14, 2016, the Company filed motions to dismiss based on substantive and jurisdictional grounds, as well as a motion to transfer venue. These motions are pending and the ~~action is~~substantive and jurisdictional grounds, as well as a motion to transfer venue, all of which were stayed ~~while~~pending the resolution of related litigation ~~is resolved~~ on appeal. In September 2018, the stay of the case was lifted. At this stage of the proceedings, the Company is
not able to either predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit and is vigorously defending this lawsuit.

~~Rite Aid~~In December 2017, the United States Judicial Panel on multidistrict litigation ordered consolidated numerous lawsuits filed against various defendants by plaintiffs such as counties, cities, hospitals, and third-party payors, alleging claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation isIn re National Prescription Opiate Litigation (MDL No. 2804), pending in the ~~preliminary stages~~U.S. District Court for the Northern District of Ohio. This multidistrict litigation ~~with 10~~includes relevant federal court lawsuits that name the Company, including lawsuits filed by counties and municipalities in California, Georgia, Idaho, Indiana, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New Mexico, North Carolina, Ohio, Puerto Rico, Texas, West Virginia, ~~counties~~ and Wisconsin. Similar lawsuits that name the Company in some capacity have been filed in state courts, including lawsuits filed by Shelby County, Tennessee, ~~related to the alleged costs of opioid addiction by their residents. All lawsuits except for the~~ Shelby County ~~action are federal~~(Tennessee) v. Purdue Pharma, L.P. et al.; Brooke County, West Virginia, Brooke County (West Virginia) et al. v. Purdue Pharma L.P., et al.; the city of Strongsville, Ohio, The City of Strongsville, Ohio v. Purdue Pharma L.P., et al.; the County of Fannin, Georgia, County of Fannin (Georgia) v. Rite Aid of Georgia, Inc. et al.; the City of Fitchburg, Massachusetts, City of Fitchburg (Massachusetts) v. Purdue Pharma L.P. et al.; and lawsuits ~~that~~filed by 23 South Carolina counties, which have been consolidated in ~~the Northern District~~front of ~~Ohio before~~ Judge ~~Polster~~Perry H. Gravely for purposes of discovery as ~~part of the~~ In re: ~~National Prescription Opiate~~South Carolina Opioid Litigation. No responsive pleadings have been filed by Rite Aid because the West Virginia lawsuits had all been stayed prior to consolidation and Rite Aid has not yet been served with the Shelby County complaint. The complaints allege generally that defendants, including Rite Aid, created a public nuisance in the plaintiff counties. Along with other distributors, these Counties accuse Rite Aid of distributing an excessive amount of opiates to licensed pharmacies, or otherwise failing to refuse suspicious orders. At this stage of ~~these~~the proceedings, the Company is not able to either predict the outcome of these lawsuits or estimate a potential range of loss with respect to the lawsuits and is vigorously defending them.
The Company is involved in two putative consumer class action lawsuits in the United States District Court for the Southern District of California, alleging that it has overcharged customers’ insurance companies for prescription drug purchases, resulting in overpayment of co-pays. The first lawsuit, Byron Stafford v. Rite Aid Corp., Case No. 17-CV-01340-AJB-JLB, was filed on June 30, 2017, and the second case, Robert Josten v. Rite Aid Corp., Case No. 18-CV-00152-AJB-JLB, was filed on January 23, 2018. Each lawsuit alleges that (1) the Company was obligated to charge the plaintiffs’ insurance companies a “usual and customary” price for their prescription drugs; and (2) the Company failed to do so properly because the prices it reported were not equal to or adjusted to account for the discount prices that Rite Aid offers to uninsured and underinsured customers through its Rx Savings Program. On December 19, 2017, the court granted the Company’s motion to dismiss Stafford’s complaints with leave to amend for failure to plead compliance with the applicable statutes of limitations. After Stafford amended the complaint on January 9, 2018, the Company filed another motion to dismiss on January 23, 2018, and a similar motion to dismiss Josten’s complaint on March 16, 2018. Both motions are fully briefed and are awaiting a decision from the court. At this stage of the proceedings, the Company is not able to either predict the outcome of these lawsuits or estimate a potential range of loss with respect to the lawsuit and is vigorously defending these lawsuits.

In addition to the above described matters, the Company is subject from time to time to various claims and lawsuits and governmental investigations arising in the ordinary course of business. While the Company’s management cannot predict the outcome of any of the claims, the Company’s management does not believe that the outcome of any of these ~~legal~~ matters will be material to the Company’s consolidated financial position. It is possible, however, that the Company’s results of operations or cash flows could be materially affected by an unfavorable resolution of pending litigation or contingencies.

15. Supplementary Cash Flow Data

Thirty-Nine Weeks
Ended December
2, 2017

Twenty-Six Weeks Ended

September 1,
2018

September 2,
2017

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

$
285,022

Cash payments of income taxes, net of refunds

$
8,353

Cash paid for interest (net of capitalized amounts of $3 and $184, respectively)(a)

$
165,995

$
208,909

Cash payments for income taxes, net(a)

$
19,314

$
3,119

Equipment financed under capital leases

$
10,295

$
2,275

$
8,615

Equipment received for noncash consideration

$
2,044

$
—

$
1,295

Reduction in lease financing obligation

$
4,740

$
—

$
4,740

Gross borrowings from revolver(a)

$
2,203,000

$
2,237,000

$
1,471,000

Gross payments to revolver

$
2,467,080

Gross repayments to revolver(a)

$
902,000

$
1,661,000

Thirty-Nine Weeks
Ended November
26, 2016

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

$
273,761

Cash payments of income taxes, net of refunds

$
6,506

Equipment financed under capital leases

$
3,881

Equipment received for noncash consideration

$
746

Gross borrowings from revolver

$
2,774,000

Gross payments to revolver

$
2,494,000

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

Significant components of cash used by Other Liabilities of $245,587 for the twenty-six week period ended September 1, 2018 includes cash used resulting from changes in accrued wages, benefits and other personnel costs of $131,724 and changes in the amounts due to pharmacy network providers of $78,000.
16. Guarantor and Non-Guarantor Condensed Consolidating Financial Information

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

For the purposes of preparing the information below, Rite Aid Corporation uses the equity method to account for its investment in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in the non-guarantor subsidiaries. The subsidiary guarantees related to the Company’s Amended and Restated Senior Secured Credit Facility, ~~second priority secured term loan facilities and secured guaranteed notes~~ and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. Presented below is condensed consolidating financial information for Rite Aid Corporation, the Subsidiary Guarantors, and the non-guarantor subsidiaries at ~~December 2, 2017,~~September 1, 2018, March ~~4, 2017,~~3, 2018, and for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, ~~2017 and November 26, 2016.~~2017. Separate financial statements for Subsidiary Guarantors are not presented.

Rite Aid Corporation

Condensed Consolidating Balance Sheet

December 2, 2017

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
163,343

$
6,457

$
—

$
169,800

Accounts receivable, net

—

1,503,578

293,341

—

1,796,919

Intercompany receivable

200,895

—

(200,895
)(a)
—

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

—

1,853,886

—

—

1,853,886

Prepaid expenses and other current assets

—

240,093

619

—

240,712

Current assets held for sale

—

1,868,128

—

—

1,868,128

Total current assets

—

5,829,923

300,417

(200,895
)
5,929,445

Property, plant and equipment, net

—

1,479,214

—

—

1,479,214

Goodwill

—

1,682,847

—

—

1,682,847

Other intangibles, net

—

566,371

51,903

—

618,274

Deferred tax assets

—

1,419,544

—

—

1,419,544

Investment in subsidiaries

7,953,874

47,355

—

(8,001,229
)(b)
—

Intercompany receivable

—

261,847

—

(261,847
)(a)
—

Other assets

—

203,995

7,295

—

211,290

Total assets

$
7,953,874

$
11,491,096

$
359,615

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

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
90

$
20,264

$
—

$
—

$
20,354

Accounts payable

—

1,780,226

9,230

—

1,789,456

Intercompany payable

—

—

200,895

(200,895
)(a)
—

Accrued salaries, wages and other current liabilities

94,613

1,082,686

81,287

—

1,258,586

Current liabilities held for sales

3,786,480

51,039

—

—

3,837,519

Total current liabilities

3,881,183

2,934,215

291,412

(200,895
)
6,905,915

Long-term debt, less current maturities

2,985,700

—

—

—

2,985,700

Lease financing obligations, less current maturities

—

31,654

—

—

31,654

Intercompany payable

261,847

—

—

(261,847
)(a)
—

Other noncurrent liabilities

—

571,353

20,848

—

592,201

Total liabilities

7,128,730

3,537,222

312,260

(462,742
)
10,515,470

Commitments and contingencies

—

—

—

—

—

Total stockholders’ equity

825,144

7,953,874

47,355

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

Total liabilities and stockholders’ equity

$
7,953,874

$
11,491,096

$
359,615

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

Rite Aid Corporation

Condensed Consolidating Balance Sheet

September 1, 2018
(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
103,349

$
29,119

$
—

$
132,468

Accounts receivable, net

—

1,565,035

474,570

—

2,039,605

Intercompany receivable

310,291

—

(310,291
)(a)
—

Inventories, net of LIFO reserve of $0, $594,413, $0, $0, and $594,413

—

1,848,287

—

—

1,848,287

Prepaid expenses and other current assets

—

167,078

2,235

—

169,313

Current assets held for sale

—

181,989

—

—

181,989

Total current assets

—

4,176,029

505,924

(310,291
)
4,371,662

Property, plant and equipment, net

—

1,350,735

—

—

1,350,735

Goodwill

—

1,108,135

—

—

1,108,135

Other intangibles, net

—

430,342

50,178

—

480,520

Deferred tax assets

—

635,127

—

—

635,127

Investment in subsidiaries

8,661,543

53,443

—

(8,714,986
)(b)
—

Intercompany receivable

—

3,709,374

—

(3,709,374
)(a)
—

Other assets

—

212,272

7,217

—

219,489

Total assets

$
8,661,543

$
11,675,457

$
563,319

$
(12,734,651
)
$
8,165,668

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
90

$
18,578

$
—

$
—

$
18,668

Accounts payable

—

1,726,014

7,975

—

1,733,989

Intercompany payable

—

—

310,291

(310,291
)(a)
—

Accrued salaries, wages and other current liabilities

14,388

751,080

173,472

—

938,940

Total current liabilities

14,478

2,495,672

491,738

(310,291
)
2,691,597

Long-term debt, less current maturities

3,481,741

—

—

—

3,481,741

Lease financing obligations, less current maturities

—

26,537

—

—

26,537

Intercompany payable

3,709,374

—

—

(3,709,374
)(a)
—

Other noncurrent liabilities

—

491,705

18,138

—

509,843

Rite Aid Corporation

Condensed Consolidating Balance Sheet

September 1, 2018

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Total liabilities

7,205,593

3,013,914

509,876

(4,019,665
)
6,709,718

Commitments and contingencies

—

—

—

—

—

Total stockholders’ equity

1,455,950

8,661,543

53,443

(8,714,986
)(b)
1,455,950

Total liabilities and stockholders’ equity

$
8,661,543

$
11,675,457

$
563,319

$
(12,734,651
)
$
8,165,668

(a) Elimination of intercompany accounts receivable and accounts payable amounts.
(b) Elimination of investments in consolidated subsidiaries.

Rite Aid Corporation

Condensed Consolidating Balance Sheet

March 3, 2018

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
441,244

$
6,090

$
—

$
447,334

Accounts receivable, net

—

1,502,507

366,593

—

1,869,100

Intercompany receivable

223,413

—

(223,413
)(a)
—

Inventories, net of LIFO reserve of $0, $581,090, $0, $0, and $581,090

—

1,799,539

—

—

1,799,539

Prepaid expenses and other current assets

—

176,678

4,503

—

181,181

Current assets held for sale

—

438,137

—

—

438,137

Total current assets

—

4,581,518

377,186

(223,413
)
4,735,291

Property, plant and equipment, net

—

1,431,246

—

—

1,431,246

Goodwill

—

1,421,120

—

—

1,421,120

Other intangibles, net

—

539,115

51,328

—

590,443

Deferred tax assets

—

594,019

—

—

594,019

Investment in subsidiaries

8,745,390

54,076

—

(8,799,466
)(b)
—

Intercompany receivable

—

3,189,419

—

(3,189,419
)(a)
—

Other assets

—

209,926

7,282

—

217,208

Total assets

$
8,745,390

$
12,020,439

$
435,796

$
(12,212,298
)
$
8,989,327

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
90

$
20,671

$
—

$
—

$
20,761

Accounts payable

—

1,641,676

9,687

—

1,651,363

Intercompany payable

—

—

223,413

(223,413
)(a)
—

Accrued salaries, wages and other current liabilities

65,223

1,031,379

135,134

—

1,231,736

Current liabilities held for sale

549,549

10,656

—

—

560,205

Total current liabilities

614,862

2,704,382

368,234

(223,413
)
3,464,065

Long-term debt, less current maturities

3,340,099

—

—

—

3,340,099

Rite Aid Corporation

Condensed Consolidating Balance Sheet

March 4, 2017

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
213,104

$
32,306

$
—

$
245,410

Accounts receivable, net

—

1,506,288

264,838

—

1,771,126

Intercompany receivable

215,862

—

(215,862
)(a)
—

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

—

1,789,541

—

—

1,789,541

Prepaid expenses and other current assets

—

203,033

8,508

—

211,541

Current assets held for sale

—

1,047,670

—

—

1,047,670

Total current assets

—

4,975,498

305,652

(215,862
)
5,065,288

Property, plant and equipment, net

—

1,526,462

—

—

1,526,462

Goodwill

—

1,682,847

—

—

1,682,847

Other intangibles, net

—

661,778

53,628

—

715,406

Deferred tax assets

—

1,505,564

—

—

1,505,564

Investment in subsidiaries

15,275,488

50,004

—

(15,325,492
)(b)
—

Intercompany receivable

—

7,331,675

—

(7,331,675
)(a)
—

Other assets

—

215,917

—

—

215,917

Noncurrent assets held for sale

—

882,268

—

—

882,268

Total assets

$
15,275,488

$
18,832,013

$
359,280

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

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of long-term debt and lease financing obligations

$
90

$
17,619

$
—

$
—

$
17,709

Accounts payable

—

1,609,025

4,884

—

1,613,909

Intercompany payable

—

—

215,862

(215,862
)(a)
—

Accrued salaries, wages and other current liabilities

66,365

1,207,240

67,342

—

1,340,947

Current liabilities held for sales

—

32,683

—

—

32,683

Total current liabilities

66,455

2,866,567

288,088

(215,862
)
3,005,248

Long-term debt, less current maturities

3,235,888

—

—

—

3,235,888

Lease financing obligations, less current maturities

—

37,204

—

—

37,204

Intercompany payable

7,331,675

—

—

(7,331,675
)(a)
—

Other noncurrent liabilities

—

622,762

21,188

—

643,950

Noncurrent liabilities held for sale

4,027,400

29,992

4,057,392

Total liabilities

14,661,418

3,556,525

309,276

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

Commitments and contingencies

—

—

—

—

—

Total stockholders’ equity

614,070

15,275,488

50,004

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

Total liabilities and stockholders’ equity

$
15,275,488

$
18,832,013

$
359,280

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

Rite Aid Corporation

Condensed Consolidating Balance Sheet

March 3, 2018

(unaudited)

Rite Aid
Corporation (Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Lease financing obligations, less current maturities

—

30,775

—

—

30,775

Intercompany payable

3,189,419

—

—

(3,189,419
)(a)
—

Other noncurrent liabilities

—

539,892

13,486

—

553,378

Total liabilities

7,144,380

3,275,049

381,720

(3,412,832
)
7,388,317

Commitments and contingencies

—

—

—

—

—

Total stockholders’ equity

1,601,010

8,745,390

54,076

(8,799,466
)(b)
1,601,010

Total liabilities and stockholders’ equity

$
8,745,390

$
12,020,439

$
435,796

$
(12,212,298
)
$
8,989,327

(a) Elimination of intercompany accounts receivable and accounts payable amounts.
(b) Elimination of investments in consolidated subsidiaries.

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

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
5,331,788

$
47,064

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

Costs and expenses:

Cost of revenues

—

4,146,272

45,063

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

Selling, general and administrative expenses

—

1,162,416

4,892

(794
)(a)
1,166,514

Lease termination and impairment expenses

—

3,939

—

—

3,939

Interest expense

45,586

5,040

(318
)
—

50,308

Gain on sale of assets, net

—

205

—

—

205

Equity in earnings of subsidiaries, net of tax

(186,073
)
1,793

—

184,280
(b)
—

(140,487
)
5,319,665

49,637

158,598

5,387,413

Earnings from continuing operations before income taxes

140,487

12,123

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

—

(15,281
)
(780
)
—

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

140,487

27,404

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

(59,456
)
158,669

—

—

99,213

Net income (loss)

$
81,031

$
186,073

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

Total other comprehensive income (loss)

514

514

—

(514
)
514

Comprehensive income (loss)

$
81,545

$
186,587

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

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Thirteen Weeks Ended September 1, 2018
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
5,347,051

$
101,900

$
(27,589
)(a)
$
5,421,362

Costs and expenses:

Cost of revenues

—

4,193,129

94,470

(27,388
)(a)
4,260,211

Selling, general and administrative expenses

—

1,147,491

6,701

(201
)(a)
1,153,991

Lease termination and impairment expenses

—

39,609

—

—

39,609

Goodwill and intangible asset impairment charges

—

375,190

—

—

375,190

Interest expense

52,365

3,811

57

—

56,233

Gain on sale of assets, net

—

(4,965
)
—

—

(4,965
)
Equity in earnings of subsidiaries, net of tax

288,700

(852
)
—

(287,848
)(b)
—

341,065

5,753,413

101,228

(315,437
)
5,880,269

(Loss) income from continuing operations before income taxes

(341,065
)
(406,362
)
672

287,848

(458,907
)
Income tax benefit

—

(106,379
)
(180
)
—

(106,559
)
Net (loss) income from continuing operations

(341,065
)
(299,983
)
852

287,848

(352,348
)
Net (loss) income from discontinued operations

(18,075
)
11,283

—

—

(6,792
)
Net (loss) income

$
(359,140
)
$
(288,700
)
$
852

$
287,848
(b)
$
(359,140
)
Total other comprehensive income (loss)

364

364

—

(364
)
364

Comprehensive (loss) income

$
(358,776
)
$
(288,336
)
$
852

$
287,484

$
(358,776
)

(a)                                 Elimination of intercompany revenues and expenses.
(b)                                 Elimination of equity in earnings of subsidiaries.

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

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

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

(in thousands)

Revenues

$
—

$
5,641,856

$
57,044

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

$
—

$
5,323,340

$
41,877

$
(20,206
)(a)
$
5,345,011

Costs and expenses:

Cost of revenues

—

4,395,976

57,270

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

—

4,164,126

39,961

(20,749
)(a)
4,183,338

Selling, general and administrative expenses

—

1,167,983

1,465

(802
)(a)
1,168,646

—

1,139,825

1,476

543
(a)
1,141,844

Lease termination and impairment expenses

—

7,199

—

—

7,199

—

3,113

—

—

3,113

Interest expense

45,959

4,322

23

—

50,304

45,529

5,341

(13
)
—

50,857

Walgreen Boots Alliance, Inc. termination fee

(325,000
)
—

—

—

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

—

(225
)
—

—

(225
)

—

(14,951
)
—

—

(14,951
)
Equity in earnings of subsidiaries, net of tax

(116,974
)
3,059

—

113,915
(b)
—

48,351

(456
)
—

(47,895
)(b)
—

(71,015
)
5,578,314

58,758

84,126

5,650,183

(231,120
)
5,296,998

41,424

(68,101
)
5,039,201

Earnings from continuing operations before income taxes

71,015

63,542

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

231,120

26,342

453

47,895

305,810

Income tax expense (benefit)

—

(6,027
)
1,345

—

(4,682
)

—

117,453

(3
)
—

117,450

Net income (loss) from continuing operations

71,015

69,569

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

231,120

(91,111
)
456

47,895

188,360

Net income (loss) from discontinued operations

(56,005
)
47,405

—

—

(8,600
)
Net (loss) income from discontinued operations

(60,404
)
42,760

—

—

(17,644
)
Net income (loss)

$
15,010

$
116,974

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

$
170,716

$
(48,351
)
$
456

$
47,895
(b)
$
170,716

Total other comprehensive income (loss)

681

681

—

(681
)
681

515

515

—

(515
)
515

Comprehensive income (loss)

$
15,691

$
117,655

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

$
171,231

$
(47,836
)
$
456

$
47,380

$
171,231

(a)                                 Elimination of intercompany revenues and expenses.
(b)                                 Elimination of equity in earnings of subsidiaries.

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Twenty-Six Weeks Ended September 1, 2018
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
10,668,075

$
197,485

$
(55,708
)(a)
$
10,809,852

Costs and expenses:

Cost of revenues

—

8,351,757

183,502

(55,307
)(a)
8,479,952

Selling, general and administrative expenses

—

2,292,321

14,698

(401
)(a)
2,306,618

Lease termination and impairment expenses

—

49,468

—

—

49,468

Goodwill and intangible asset impairment charges

—

375,190

—

—

375,190

Interest expense

112,304

6,756

(35
)
—

119,025

Loss on debt retirements, net

—

554

—

—

554

Gain on sale of assets, net

—

(10,824
)
—

—

(10,824
)
Equity in earnings of subsidiaries, net of tax

9,730

633

—

(10,363
)(b)
—

122,034

11,065,855

198,165

(66,071
)
11,319,983

(Loss) income from continuing operations before income taxes

(122,034
)
(397,780
)
(680
)
10,363

(510,131
)
Income tax benefit

—

(116,009
)
(47
)
—

(116,056
)
Net (loss) income from continuing operations

(122,034
)
(281,771
)
(633
)
10,363

(394,075
)
Net (loss) income from discontinued operations

(22,690
)
272,041

—

—

249,351

Net (loss) income

$
(144,724
)
$
(9,730
)
$
(633
)
$
10,363
(b)
$
(144,724
)
Total other comprehensive income (loss)

728

728

—

(728
)
728

Comprehensive (loss) income

$
(143,996
)
$
(9,002
)
$
(633
)
$
9,635

$
(143,996
)

(a)                                 Elimination of intercompany revenues and expenses.
(b)                                 Elimination of equity in earnings of subsidiaries.

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

Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Twenty-Six Weeks Ended September 2, 2017
(unaudited)

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

(in thousands)

Revenues

$
—

$
16,070,256

$
128,391

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

$
—

$
10,738,468

$
81,327

$
(38,261
)(a)
$
10,781,534

Costs and expenses:

Cost of revenues

—

12,565,600

122,926

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

—

8,419,328

77,863

(39,273
)(a)
8,457,918

Selling, general and administrative expenses

—

3,459,511

9,569

218
(a)
3,469,298

—

2,297,095

4,677

1,012
(a)
2,302,784

Lease termination and impairment expenses

—

11,090

—

—

11,090

—

7,151

—

—

7,151

Interest expense

137,562

14,896

(293
)
—

152,165

91,976

9,856

25

—

101,857

Walgreens Boots Alliance, Inc. termination fee

(325,000
)
—

—

—

(325,000
)

(325,000
)
—

—

—

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

—

(20,623
)
—

—

(20,623
)

—

(20,828
)
—

—

(20,828
)
Equity in earnings of subsidiaries, net of tax

(167,757
)
2,649

—

165,108
(b)
—

18,316

856

—

(19,172
)(b)
—

(355,195
)
16,033,123

132,202

101,165

15,911,295

(214,708
)
10,713,458

82,565

(57,433
)
10,523,882

Earnings from continuing operations before income taxes

355,195

37,133

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

Income (loss) from continuing operations before income taxes

214,708

25,010

(1,238
)
19,172

257,652

Income tax expense (benefit)

—

90,430

(1,162
)
—

89,268

—

105,711

(382
)
—

105,329

Net income (loss) from continuing operations

355,195

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

214,708

(80,701
)
(856
)
19,172

152,323

Net income (loss) from discontinued operations

(178,797
)
221,054

—

—

42,257

Net (loss) income from discontinued operations

(119,341
)
62,385

—

—

(56,956
)
Net income (loss)

$
176,398

$
167,757

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

$
95,367

$
(18,316
)
$
(856
)
$
19,172
(b)
$
95,367

Total other comprehensive income (loss)

1,543

1,543

—

(1,543
)
1,543

1,029

1,029

—

(1,029
)
1,029

Comprehensive income (loss)

$
177,941

$
169,300

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

$
96,396

$
(17,287
)
$
(856
)
$
18,143

$
96,396

(a)                                 Elimination of intercompany revenues and expenses.
(b)                                 Elimination of equity in earnings of subsidiaries.

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

Rite Aid
Corporation
(Parent
Company Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Revenues

$
—

$
16,946,453

$
176,153

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

Costs and expenses:

Cost of revenues

—

13,233,024

170,883

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

Selling, general and administrative expenses

—

3,519,465

7,435

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

Lease termination and impairment expenses

—

20,203

—

—

20,203

Interest expense

133,208

13,436

30

—

146,674

Gain (loss) on sale of assets, net

—

(388
)
—

—

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

(328,539
)
3,704

—

324,835
(b)
—

(195,331
)
16,789,444

178,348

226,383

16,998,844

Earnings from continuing operations before income taxes

195,331

157,009

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

Income tax expense (benefit)

—

(5,333
)
1,509

—

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

195,331

162,342

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

Net income (loss) from discontinued operations

(170,136
)
166,197

—

—

(3,939
)
Net income (loss)

$
25,195

$
328,539

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

Total other comprehensive income (loss)

2,043

2,043

—

(2,043
)
2,043

Comprehensive income (loss)

$
27,238

$
330,582

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

~~(a)~~                                 ~~Elimination of intercompany revenues and expenses.~~
~~(b)~~                                 ~~Elimination of equity in earnings of subsidiaries.~~

Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Twenty-Six Weeks Ended September 1, 2018
(unaudited)

Rite Aid
Corporation
(Parent
Company
Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Operating activities:

Net cash used in operating activities

$
(158,413
)
$
(165,518
)
$
23,029

$
—

$
(300,902
)
Investing activities:

Payments for property, plant and equipment

—

(92,565
)
—

—

(92,565
)
Intangible assets acquired

—

(20,519
)
—

—

(20,519
)
Intercompany activity

—

(597,415
)
—

597,415

—

Proceeds from dispositions of assets and investments

—

15,729

—

—

15,729

Proceeds from sale-leaseback transactions

—

2,587

—

—

2,587

Net cash (used in) provided by investing activities

—

(692,183
)
—

597,415

(94,768
)
Financing activities:

Net proceeds from revolver

1,335,000

—

—

—

1,335,000

Principal payments on long-term debt

(426,307
)
(7,439
)
—

—

(433,746
)
Change in zero balance cash accounts

—

(17,101
)
—

—

(17,101
)
Net proceeds from issuance of common stock

1,302

—

—

—

1,302

Financing fees paid for early debt redemption

—

(13
)
—

—

(13
)
Payments for taxes related to net share settlement of equity awards

—

(2,244
)
—

—

(2,244
)
Intercompany activity

597,415

—

—

(597,415
)
—

Net cash provided by (used in) financing activities

1,507,410

(26,797
)
—

(597,415
)
883,198

Cash flows of discontinued operations:

Operating activities of discontinued operations

(4,615
)
(57,388
)
—

—

(62,003
)
Investing activities of discontinued operations

—

603,402

—

—

603,402

Financing activities of discontinued operations

(1,344,382
)
589

—

—

(1,343,793
)
Net cash (used in) provided by discontinued operations

(1,348,997
)
546,603

—

—

(802,394
)
(Decrease) increase in cash and cash equivalents

—

(337,895
)
23,029

—

(314,866
)
Cash and cash equivalents, beginning of period

—

441,244

6,090

—

447,334

Cash and cash equivalents, end of period

$
—

$
103,349

$
29,119

$
—

$
132,468

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

Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Twenty-Six Weeks Ended September 2, 2017
(unaudited)

Rite Aid
Corporation
(Parent
Company
Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Rite Aid
Corporation
(Parent
Company
Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

(in thousands)

Operating activities:

Net cash provided by operating activities

$
229,578

$
220,721

$
(25,849
)
$
—

$
424,450

$
182,377

$
106,402

$
6,694

$
—

$
295,473

Investing activities:

Payments for property, plant and equipment

—

(140,816
)
—

—

(140,816
)

—

(79,116
)
—

—

(79,116
)
Intangible assets acquired

—

(20,201
)
—

—

(20,201
)

—

(9,679
)
—

—

(9,679
)
Intercompany activity

—

(449,803
)
—

449,803

—

—

(66,345
)
—

66,345

—

Proceeds from insured loss

3,627

3,627

Proceeds from dispositions of assets and investments

—

19,254

—

—

19,254

—

17,407

—

—

17,407

Proceeds from insured loss

—

3,627

—

—

3,627

Net cash (used in) provided by investing activities

—

(587,939
)
—

449,803

(138,136
)

—

(134,106
)
—

66,345

(67,761
)
Financing activities:

Net payments to revolver

(264,080
)
—

—

—

(264,080
)
Net proceeds from revolver

(190,000
)
—

—

—

(190,000
)
Principal payments on long-term debt

—

(7,292
)
—

—

(7,292
)

—

(4,386
)
—

—

(4,386
)
Change in zero balance cash accounts

—

27,594

—

—

27,594

—

10,189

—

—

10,189

Net proceeds from issuance of common stock

4,416

—

—

—

4,416

215

—

—

—

215

Payments for taxes related to net share settlement of equity awards

—

(4,103
)
—

—

(4,103
)
Excess tax benefit on stock options and restricted stock

—

(4,071
)
—

—

(4,071
)
Intercompany activity

449,803

—

—

(449,803
)
—

66,345

—

—

(66,345
)
—

Net cash provided by (used in) financing activities

190,139

16,199

—

(449,803
)
(243,465
)
Net cash (used in) provided by financing activities

(123,440
)
1,732

—

(66,345
)
(188,053
)
Cash flows of discontinued operations:

Operating activities of discontinued operations

(178,797
)
116,503

—

—

(62,294
)

(58,937
)
61,295

—

—

2,358

Investing activities of discontinued operations

—

189,175

—

—

189,175

—

(44,739
)
—

—

(44,739
)
Financing activities of discontinued operations

(240,920
)
(4,420
)
—

—

(245,340
)

—

(3,710
)
—

—

(3,710
)
Net cash provided by (used in) discontinued operations

(419,717
)
301,258

—

—

(118,459
)
Net cash (used in) provided by discontinued operations

(58,937
)
12,846

—

—

(46,091
)
(Decrease) increase in cash and cash equivalents

—

(49,761
)
(25,849
)
—

(75,610
)

—

(13,126
)
6,694

—

(6,432
)
Cash and cash equivalents, beginning of period

—

213,104

32,306

—

245,410

—

213,104

32,306

—

245,410

Cash and cash equivalents, end of period

$
—

$
163,343

$
6,457

$
—

$
169,800

$
—

$
199,978

$
39,000

$
—

$
238,978

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

Rite Aid
Corporation
(Parent
Company
Only)

Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(in thousands)

Operating activities:

Net cash (used in) provided by operating activities

$
(92,312
)
$
259,647

$
5,913

$
—

$
173,248

Investing activities:

Payments for property, plant and equipment

—

(197,723
)
—

—

(197,723
)
Intangible assets acquired

—

(35,986
)
—

—

(35,986
)
Intercompany activity

—

21,964

—

(21,964
)
—

Proceeds from dispositions of assets and investments

—

10,217

—

—

10,217

Net cash used in investing activities

—

(201,528
)
—

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

Net proceeds from revolver

280,000

—

—

—

280,000

Principal payments on long-term debt

—

(12,728
)
—

—

(12,728
)
Change in zero balance cash accounts

—

30,685

—

—

30,685

Net proceeds from issuance of common stock

4,412

—

—

—

4,412

Excess tax benefit on stock options and restricted stock

—

3,809

—

—

3,809

Payments for taxes related to net share settlement of equity awards

—

(6,254
)
—

—

(6,254
)
Intercompany activity

(21,964
)
—

—

21,964

—

Net cash provided by financing activities

262,448

15,512

—

21,964

299,924

Cash flows of discontinued operations:

Operating activities of discontinued operations

(170,136
)
168,595

—

—

(1,541
)
Investing activities of discontinued operations

—

(148,884
)
—

—

(148,884
)
Financing activities of discontinued operations

—

(3,698
)
—

—

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

(170,136
)
16,013

—

—

(154,123
)
Increase in cash and cash equivalents

—

89,644

5,913

—

95,557

Cash and cash equivalents, beginning of period

—

90,569

33,902

—

124,471

Cash and cash equivalents, end of period

$
—

$
180,213

$
39,815

$
—

$
220,028

~~17. Subsequent Event~~
On January 3, 2018, the Company entered into a Tax Benefits Preservation Plan (the “Plan”) with Broadridge Corporate Issuer Solutions, as rights agent, and its Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $1.00 per share, to stockholders of record at the close of business on January 16, 2018. Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series J Junior Participating Preferred Stock, par value $1.00 per share, at a purchase price of $8.00 per unit, subject to adjustment. The purpose of the Plan is to preserve our ability to use the Company’s net operating loss carryforwards and other tax attributes (collectively, “Tax Benefits”) which would be substantially limited if the Company experienced an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if Company shareholders who are treated as owning 5 percent or more of its outstanding shares for purposes of Section 382 (“5-percent shareholders”) collectively increase their aggregate ownership in the Company’s overall shares outstanding by more than 50 percentage points. Whether this change has occurred would be measured by comparing each 5-percent shareholder’s current ownership as of the measurement date to such shareholders’ lowest ownership percentage during the three year period preceding the measurement date. The adoption of the Plan is intended to ensure that the Company will be able to utilize Tax Benefits in connection with the Sale.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a pharmacy retail healthcare company, providing our customers and communities with a high level of care and service through various programs we offer through our two reportable business segments, our Retail Pharmacy segment and our Pharmacy Services segment. We accomplish our goal of delivering comprehensive care to our customers through our retail drugstores, RediClinic walk-in retail health clinics and our transparent and traditional PBMs, EnvisionRxOptions and ~~MedTrak PBMs.~~MedTrak. We also offer fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies. Additionally through EIC, EnvisionRxOptions also serves one of the fastest-growing demographics in healthcare: seniors enrolled in Medicare Part D. When combined with our retail platform, this comprehensive suite of services allows us to provide value and choice to customers, patients and ~~payors and allows us to succeed in today’s evolving healthcare marketplace.~~payors.

Retail Pharmacy Segment

Our Retail Pharmacy segment sells brand and generic prescription drugs, as well as an assortment of front-end products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs and front-end products at our ~~2,569~~2,526 retail stores. We replenish our retail stores through a combination of direct store delivery of pharmaceutical products facilitated
through our pharmacy Purchasing and Delivery Agreement with McKesson Corporation, and the majority of our front end products through our network of ~~ten~~ distribution centers. In addition, the Retail Pharmacy segment includes 7974 RediClinic walk-in retail clinics, of which 4338 are located within Rite Aid retail stores in the Philadelphia, Seattle and New Jersey markets.

Pharmacy Services Segment

Our Pharmacy Services segment ~~which was formed on June 24, 2015 through our acquisition of EnvisionRxOptions,~~ provides a full range of pharmacy benefit services. The Pharmacy Services segment provides both transparent and traditional ~~pharmacy benefit management (“PBM”)~~PBM options through its EnvisionRxOptions and MedTrak PBMs, respectively. EnvisionRxOptions also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies; ~~access to the nation’s largest cash pay infertility discount drug program via Design Rx;~~ an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through EIC’s EnvisionRx Plus product offering. The segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, other sponsors of health benefit plans and individuals throughout the United States.

~~Asset Sale to WBA~~Termination of the Merger Agreement with Albertsons Companies, Inc.

~~Termination of~~On February 18, 2018, we entered into the Merger Agreement with ~~WBA~~
Albertsons and the Merger Subs. On ~~June 28, 2017,~~August 8, 2018, Rite Aid, ~~WBA~~Albertsons and ~~Victoria~~ Merger ~~Sub, Inc.~~Subs entered into athe Merger Termination Agreement ~~(the “Merger Termination Agreement”)~~ under which the parties mutually agreed to terminate the Merger Agreement. ~~The~~Subject to limited customary exceptions, the Merger Termination Agreement ~~provides that WBA would pay~~mutually releases the parties from any claims of liability to one another relating to the contemplated Merger. Under the terms of the Merger Agreement, neither Rite Aid nor Albertsons is responsible for any payments to the other party as a result of the termination ~~fee~~of the Merger Agreement and Rite Aid is no longer subject to the interim operating covenants and restrictions in the ~~amount of $325.0 million, which we received on June 30, 2017.~~Merger Agreement.

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

On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement with WBA and ~~the~~ Buyer, which amended and restated in its entirety the previously disclosed Original ~~APA.~~APA, dated as of June 28, 2017, by and among Rite Aid, WBA and Buyer. Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, ~~the~~ Buyer ~~will~~agreed to purchase from usRite Aid 1,932 ~~stores,~~Acquired Stores, three ~~(3)~~ distribution centers, related inventory and other specified assets and liabilities related thereto for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis, ~~plus~~in the ~~Buyer’s assumption of certain liabilities of Rite Aid and its affiliates. On~~Sale.
We announced on September 19, 2017 ~~we announced~~ that the waiting period under the HSR Act expired with respect to the Sale. ~~On November~~As of March 27, ~~2017,~~2018, we ~~announced that we had~~have completed the ~~pilot closing~~store transfer process, and ~~first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid~~all 1,932 stores and related assets ~~to the Buyer. The majority of the closing conditions to the Sale~~ have been ~~satisfied,~~transferred to WBA and we have received cash proceeds of $4.157 billion. On September 13, 2018, we completed the ~~subsequent transfers~~sale of one of our ~~stores~~distribution centers and related assets ~~remain~~to WBA for proceeds of $61.2 million. The transfer of the two remaining distribution centers and related assets remains subject to minimal customary closing conditions applicable only to the ~~stores~~distribution centers being transferred at such ~~subsequent closing,~~distribution center closings, as specified in the Amended and Restated Asset Purchase Agreement. We recorded a pre-tax gain on the Sale of the stores of $2.5 billion.

~~We, WBA~~The parties to the Amended and ~~the Buyer~~Restated Asset Purchase Agreement have each made customary representations and warranties. We have agreed to various covenants and agreements, including, among others, our agreement to conduct ~~our~~its business at
the ~~Acquired Stores~~distribution centers being sold to WBA in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the ~~subsequent closings of the Sale.~~distribution center closing. We have also agreed to provide transition services to ~~the~~ Buyer for up to three (3) years after the initial closing of the Sale. ~~During~~Under the terms of the TSA, we provide various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, we purchase the related inventory and make cash payments for the selling, general and administrative activities, which, we bill on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017,~~September 1, 2018 were $1.8 billion and $3.9 billion, respectively, of which $386.0 million is included in Accounts receivable, net. The Company charged WBA TSA fees of $23.2 million and $46.9 million during the ~~amount charged~~thirteen and twenty-six week periods ended September 1, 2018, respectively, which are reflected as a reduction to ~~Buyer for transition services was nominal.~~selling, general and administrative expenses.

In the event that we enter into an agreement to sell all of the remainder of Rite Aid or over 50% of our stock or assets to a third party prior to the end of the transition period under the TSA, any potential acquirer would be obligated to assume our remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, we have the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen’s for a period of ten (10) years, subject to certain terms and conditions. We have until May of 2019 to exercise this option.

~~Divestiture of the Assets to be Sold~~
On October 17, 2017, we began the process of selling the Assets to be Sold to WBA in accordance with the terms and provisions as contained in the Amended and Restated Asset Purchase Agreement. During the thirteen weeks ended December 2, 2017, we sold 97 stores and related assets to WBA in exchange for proceeds of $240.9 million, which were used to repay outstanding debt, and recognized a pre-tax gain of $157.0 million. During December 2017, we sold an additional 260 stores and related assets to WBA for proceeds of $474.0 million. We estimate that the total pre-tax gain on the Sale will be approximately $2.5 billion. We expect to complete the majority of the Sale by the end of our first quarter of fiscal 2019.
Based on its magnitude and because we are exiting certain markets, the Sale represents a significant strategic shift that has a material effect on our operations and financial results. Accordingly, we have applied discontinued operations treatment for the Sale as required by GAAP.

Overview of Financial Results from Continuing Operations

Our net loss from continuing operations for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 was ~~$18.2~~$352.3 million or ~~$0.02~~$0.33 per basic and diluted share compared to net income of ~~$23.6~~$188.4 million or ~~$0.02~~$0.18 per basic and diluted share for the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Our net ~~income~~loss from continuing operations for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 was ~~$134.1~~$394.1 million or ~~$0.13~~$0.37 per basic and diluted share compared to net income of ~~$29.1~~$152.3 million or ~~$0.03~~$0.14 per basic and diluted share for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016. The decline in our~~September 2, 2017. Our operating results for the thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017 was~~September 1, 2018 were due ~~a decrease in our Adjusted EBITDA,~~primarily to goodwill and other intangible asset impairment charges and higher lease termination and impairment charges, partially offset by ~~a higher~~an income tax benefit. The ~~increase in the thirty-nine week~~ operating results ~~was due primarily to~~for the thirteen and twenty-six week periods ended September 2, 2017 were positively impacted by the receipt of ~~the $325.0 million Walgreens Boots Alliance~~a one time merger termination fee ~~for the termination~~ of ~~the merger agreement, effective June 28, 2017, partially offset by a decrease in Adjusted EBITDA and higher income tax expense.~~$325.0 million from WBA.

Our Adjusted EBITDA from continuing operations for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~September 1, 2018 was ~~$129.2~~$148.6 million or ~~2.4~~2.7 percent of revenues and ~~$402.5~~$286.6 million or ~~2.5~~2.7 percent of revenues, respectively, compared ~~$191.3~~to $136.9 million or ~~3.4~~2.6 percent of revenues and ~~$572.5~~$263.0 million or ~~3.4~~2.4 percent of revenues for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~September 2, 2017, respectively. The ~~decline~~increase in Adjusted EBITDA for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 was due primarily to ~~a decrease~~an increase of ~~$50.0~~$16.0 million in the Retail Pharmacy segment. The ~~decrease~~increase in the Retail Pharmacy segment Adjusted EBITDA was primarily driven by TSA fees received from WBA of $23.2 million, partially offset by a decline in pharmacy gross profit. The decline in pharmacy gross profit was primarily the result of a decline in pharmacy reimbursement rates, which we were unable to fully offset with generic purchasing efficiencies ~~lower~~and script counts and lower net favorable legal settlements of approximately $15.0 million. The decline in pharmacy gross profit was partially offset by a reduction of SG&A expenses of $8.6 million resulting from cost control initiatives in our Retail Pharmacy segment.count growth. Adjusted EBITDA in the Pharmacy Services segment decreased by ~~$12.1~~$4.3 million as a result of margin compression in our ~~election~~commercial business and other operating investments to ~~participate in fewer Medicare Part D regions~~support current year and ~~a decline in commercial business.~~future growth.

The ~~decline~~increase in our Adjusted EBITDA for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 was due primarily to ~~a decrease~~an increase of ~~$164.6~~$42.7 million in the Retail Pharmacy ~~segment~~segment. This increase was primarily driven by ~~lower reimbursement rates and~~the receipt of $46.9 million of TSA fees received from WBA, partially offset by a ~~decrease~~decline in ~~prescription count.~~pharmacy gross profit. The decline in pharmacy gross profit was primarily the result of a decline in pharmacy reimbursement rates, which we were ~~partially~~unable to fully offset bywith generic ~~drug~~ purchasing ~~efficiencies and a reduction of SG&A expenses of $76.3 million resulting from expense reduction initiatives in our Retail Pharmacy segment.~~efficiencies. Adjusted EBITDA ~~was also impacted by a decrease of $5.4 million of~~in the Pharmacy Services segment ~~Adjusted EBITDA driven~~decreased by $19.0 million as a result of margin compression in our ~~election~~commercial business and other operating investments to ~~participate in fewer Medicare Part D regions~~support current year and ~~a decline in commercial business.~~future growth. Please see the sections entitled “Segment Analysis” and “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” below for additional details.

Consolidated Results of Operations-Continuing Operations

Revenues and Other Operating Data

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands except per share amounts)

Revenues(a)

$
5,353,170

$
5,669,111

$
16,134,704

$
17,024,154

Revenue (decline) growth

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

$
(18,182
)
$
23,610

$
134,141

$
29,134

Net (loss) income from continuing operations per diluted share

$
(0.02
)
$
0.02

$
0.13

$
0.03

Adjusted EBITDA from continuing operations(b)

$
129,249

$
191,334

$
402,490

$
572,480

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

$
1,619

$
26,755

$
(10,082
)
$
64,727

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

$
0.00

$
0.03

$
(0.01
)
$
0.06

Thirteen Week Period Ended

Twenty-Six Week Period Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars in thousands except per share amounts)

Revenues(a)

$
5,421,362

$
5,345,011

$
10,809,852

$
10,781,534

Revenue growth (decline)

1.4
%
(5.1
)%
0.3
%
(5.1
)%
Net (loss) income

$
(352,348
)
$
188,360

$
(394,075
)
$
152,323

Thirteen Week Period Ended

Twenty-Six Week Period Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars in thousands except per share amounts)

Net (loss) income per diluted share

$
(0.33
)
$
0.18

$
(0.37
)
$
0.14

Adjusted EBITDA(b)

$
148,581

$
136,902

$
286,573

$
262,952

Adjusted Net (Loss) Income (b)

$
(7,877
)
$
17,361

$
(6,507
)
$
19,771

Adjusted Net (Loss) Income per Diluted Share(b)

$
(0.01
)
$
0.02

$
(0.01
)
$
0.02

(a)                                 Revenues for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~December 2, 2017~~September 1, 2018 exclude ~~$50,972~~$51,961 and ~~$149,703,~~$103,998, respectively, of inter-segment activity that is eliminated in consolidation. Revenues for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~November 26, 2016~~September 2, 2017 exclude ~~$59,002~~$49,662 and ~~$178,361,~~$98,731, respectively, of inter-segment activity that is eliminated in consolidation.

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

Revenues

Revenues ~~decreased 5.6%~~increased 1.4% and ~~5.2%~~0.3% for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~December 2, 2017,~~September 1, 2018, respectively, compared to ~~an increase~~a decrease of ~~0.3% and 13.9%~~5.1% for both the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~November 26, 2016, respectively.~~September 2, 2017. Revenues for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 were ~~negatively~~positively impacted by a ~~$123.3~~$9.7 million ~~decrease~~increase in Retail Pharmacy segment revenues and a ~~$200.7~~$69.0 million ~~decrease~~increase in Pharmacy Services segment revenues. Revenues for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 were negatively impacted by a ~~$486.3~~$64.9 million decrease in Retail Pharmacy segment revenues, ~~and~~partially offset by a ~~$431.9~~$98.5 million ~~decrease~~increase in Pharmacy Services segment revenues. Same store sales trends for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~ are described in the “Segment Analysis” section below.

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

Costs and Expenses

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars in thousands)

(dollars in thousands)

Cost of revenues (a)

$
4,166,447

$
4,424,259

$
12,624,365

$
13,308,505

$
4,260,211

$
4,183,338

$
8,479,952

$
8,457,918

Gross profit

1,186,723

1,244,852

3,510,339

3,715,649

1,161,151

1,161,673

2,329,900

2,323,616

Gross margin

22.2
%
22.0
%
21.8
%
21.8
%

21.4
%
21.7
%
21.6
%
21.6
%
Selling, general and administrative expenses

1,166,514

1,168,646

3,469,298

3,523,850

1,153,991

1,141,844

2,306,618

2,302,784

Selling, general and administrative expenses as a percentage of revenues

21.8
%
20.6
%
21.5
%
20.7
%

21.3
%
21.4
%
21.3
%
21.4
%
Lease termination and impairment charges

3,939

7,199

11,090

20,203

39,609

3,113

49,468

7,151

Goodwill and intangible asset imparment charges

375,190

—

375,190

—

Interest expense

50,308

50,304

152,165

146,674

56,233

50,857

119,025

101,857

(Gain) loss on sale of assets, net

205

(225
)
(20,623
)
(388
)
Gain on sale of assets, net

(4,965
)
(14,951
)
(10,824
)
(20,828
)

(a)                                 Cost of revenues for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~December 2, 2017~~September 1, 2018 exclude ~~$50,972~~$51,961 and ~~$149,703,~~$103,998, respectively, of inter-segment activity that is eliminated in consolidation. Cost of revenues for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~November 26, 2016~~September 2, 2017 exclude ~~$59,002~~$49,662 and ~~$178,361,~~$98,731, respectively, of inter-segment activity that is eliminated in consolidation.
Gross Profit and Cost of Revenues

Gross profit decreased by ~~$58.1~~$0.5 million for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 compared to the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Gross profit ~~decreased~~increased by ~~$205.3~~$6.3 million for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 compared to the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~September 2, 2017. Gross profit for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 includes a decline of ~~$53.9~~$6.8 million in our Retail Pharmacy segment, ~~and a decline~~partially offset by an increase in gross profit of ~~$4.2~~$6.3 million in our Pharmacy Services segment. Gross profit for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 includes ~~a decline~~an increase of ~~$223.0~~$5.7 million in our Retail Pharmacy segment ~~partially offset by increased~~and an increase in gross profit of ~~$17.7~~$0.6 million in our Pharmacy Services segment. Gross margin was ~~22.2%~~21.4% and ~~21.8%~~21.6%, respectively, for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~September 1, 2018 compared to ~~22.0%~~21.7% and ~~21.8%~~21.6%, respectively, for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016.~~September 2, 2017. Please see the section entitled “Segment Analysis” for a more detailed description of gross profit and gross margin results by segment.

Selling, General and Administrative Expenses

SG&A ~~decreased $2.1~~increased $12.1 million and ~~$54.6~~$3.8 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~September 1, 2018, respectively, compared to the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016.~~September 2, 2017. The ~~decrease~~increase in SG&A for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 includes an increase of $2.5 million relating to our Retail Pharmacy segment and an increase of $9.6 million relating to our Pharmacy Services segment. The increase in SG&A for the twenty-six week period ended September 1, 2018 includes a decrease of ~~$8.6~~$15.1 million relating to our Retail Pharmacy segment, partially offset by an increase of $6.4 million relating to our Pharmacy Services segment. The decrease in SG&A for the thirty-nine week period ended December 2, 2017 includes a decrease of $76.3 million relating to our Retail Pharmacy segment, partially offset by an increase of
~~$21.8~~$18.9 million relating to our Pharmacy Services segment. Please see the section entitled “Segment Analysis” below for additional details regarding SG&A.

Lease Termination and Impairment Charges

Lease termination and impairment charges consist of amounts as follows:

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

Impairment charges

$
315

$
890

$
946

$
1,578

$
33,562

$
—

$
33,845

$
659

Lease termination charges

3,624

6,309

10,144

18,625

6,047

3,113

15,623

6,492

$
3,939

$
7,199

$
11,090

$
20,203

$
39,609

$
3,113

$
49,468

$
7,151

During the thirteen week period ended September 1, 2018, due to changes in circumstances at our Retail Pharmacy segment relative to a decline in its current and anticipated operating results and related cash flows as compared to our previous projections, we determined that an active store impairment assessment was appropriate. Based on the results of the active store impairment assessment, we recorded impairment charges of $19.3 million relating to 288 active stores. Additionally, during the thirteen week period ended Septermber 1, 2018, we terminated a project to replace our point of sale software in our stores, which resulted in an impairment charge of $14.3 million due to the write-off of the related assets.

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Lease Termination and Impairment Charges” included in our Fiscal ~~2017~~2018 10-K for a detailed description of our impairment and lease termination methodology.
Goodwill and Intangible Asset Impairment Charges
During the thirteen week period ended September 1, 2018, we lowered our outlook for fiscal 2019. Based upon the change in outlook, we determined that a quantitative goodwill impairment assessment was required. The quantitative assessment concluded that the carrying amount of the Pharmacy Services segment exceeded its fair value principally due to a reduction of the projected growth for our Pharmacy Services segment compared to the growth assumptions used in our previous assessment. This resulted in a goodwill impairment charge of $313.0 million ($235.7 million net of the related income tax benefit) during the thirteen-week period ended September 1, 2018, which adjusted the carrying value of the Pharmacy Services segment to its fair value of $1,849.9 million. Additionally, due to the loss of access to a fertility drug for a direct to consumer program that our Pharmacy Services segment administered, we recorded an impairment charge to reduce the customer relationships by $48.2 million (gross carrying amount of $77.0 million less accumulated amortization of $28.8 million), and indefinite lived trademarks of $14.0 million.
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Goodwill Impariment” included in our Fiscal 2018 10-K for a detailed description of our impairment and lease termination methodology.

Interest Expense

Interest expense was ~~$50.3~~$56.2 million and ~~$152.2~~$119.0 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~September 1, 2018, respectively, compared to ~~$50.3~~$50.9 million and ~~$146.7~~$101.9 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~September 2, 2017, respectively. Interest expense was higher in the ~~thirty-nine~~thirteen and twenty-six week ~~period~~periods ended ~~December 2, 2017~~September 1, 2018 due to ~~higher average outstanding borrowings on our~~ ~~Amended~~the timing of debt repayments with excess sale proceeds and ~~Restated Senior Secured Credit Facility.~~increased LIBOR rates. The weighted average interest rates on our indebtedness for the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017 were 6.2% and ~~November 26, 2016 were~~ 5.5% ~~and 5.3%~~, respectively.

Income Taxes

We recorded an income tax benefit from continuing operations of ~~$16.0~~$106.6 million and ~~$4.7~~income tax expense from continuing operations of $117.5 million for the thirteen week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively, and an income tax ~~expense~~benefit from continuing operations of ~~$89.3~~$116.1 million and an income tax ~~benefit~~expense from continuing operations of ~~$3.8~~$105.3 million for the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively. The effective tax rate for the thirteen week periods ended ~~December~~September 1, 2018 and September 2, 2017 was 23.2% and ~~November 26, 2016 was 46.9% and (24.7)%~~38.4%, respectively. The effective tax rate for the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017 was 22.8% and ~~November 26, 2016 was 40.0% and (15.1)%~~40.9%, respectively. The effective tax rate for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017~~September 1, 2018 includes an adjustment of ~~13%~~(4.2)% and 1%(3.9)%, respectively, to increase the valuation allowance related to certain state deferred taxes. The tax expense for ~~changes~~the thirteen and twenty-six week periods ended September 2, 2017 is higher in comparison to 2018, as it is based on a federal statutory rate of 35%, and includes increases to the valuation allowance primarily ~~relating~~related to state NOLs. The effective tax rate for the thirty-nine week period ended December 2, 2017 also includes an adjustment of 55%, primarily related to the tax impact of the Walgreens Boots Alliance merger termination fee received in the second quarter of fiscal 2018. The tax benefit for the thirteen and thirty-nine week periods ended November 26, 2016 was the result of lower projected earnings for the Retail Pharmacy segment which resulted in a cumulative adjustment to the annual effective tax rate.deferred taxes.

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

~~While~~We believe that it is ~~expected~~reasonably possible that ~~the amount~~a decrease of up to $13.5 million in unrecognized tax benefits ~~will change~~related to state exposures may be necessary in the next twelve months however management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is ~~uncertain.~~uncertain considering historical profitability, projected taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. We will continue to monitor all available evidence related to the net deferred tax assets that may change the most recent assessment, including events that have occurred or are anticipated to occur. We continue to maintain a valuation allowance against net deferred tax assets of ~~$826.8~~$920.1 million and ~~$226.7~~$896.8 million, which relates primarily to state deferred tax assets at ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017,~~3, 2018, respectively. The increase in valuation allowance for the period December 2, 2017 relates primarily to a Pennsylvania law change which required an increase to the state deferred tax asset for certain net operating losses with an offsetting valuation allowance adjustment.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation. We expect to record a tax expense in the fourth quarter of fiscal 2018 between $200 million and $325 million, primarily due to the re-measurement of our net deferred tax assets. The new U.S. tax legislation is subject to a number of complex provisions, which we are currently reviewing, however we expect future earnings to be positively impacted largely due to the reduction of the U.S. federal corporate income tax rate from 35% to 21% (effective January 1, 2018).

Segment Analysis

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

Retail
Pharmacy
Segment

Pharmacy Services
Segment

Intersegment
Eliminations (1)

Consolidated
Totals

Thirteen Week Period Ended

December 2, 2017:

Revenue

$
3,959,002

$
1,445,140

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

Gross Profit

1,087,888

98,835

—

1,186,723

Adjusted EBITDA (2)

88,886

40,363

—

129,249

November 26, 2016:

Revenue

$
4,082,278

$
1,645,835

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

Gross Profit

1,141,794

103,057

—

1,244,851

Adjusted EBITDA (2)

138,903

52,431

—

191,334

Thirty-Nine Week Period Ended

December 2, 2017:

Revenue

$
11,833,195

$
4,451,212

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

Gross Profit

3,203,270

307,069

—

3,510,339

Adjusted EBITDA (2)

264,253

138,237

—

402,490

November 26, 2016:

Revenue

$
12,319,445

$
4,883,070

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

Gross Profit

3,426,265

289,384

—

3,715,649

Adjusted EBITDA (2)

428,864

143,616

—

572,480

Retail
Pharmacy
Segment

Pharmacy Services
Segment

Intersegment
Eliminations (1)

Consolidated
Totals

Thirteen Week Period Ended

September 1, 2018:

Revenue

$
3,911,512

$
1,561,811

$
(51,961
)
$
5,421,362

Gross Profit

1,051,637

109,514

—

1,161,151

Adjusted EBITDA (2)

103,618

44,963

—

148,581

September 2, 2017:

Revenue

$
3,901,842

$
1,492,831

$
(49,662
)
$
5,345,011

Gross Profit

1,058,411

103,262

—

1,161,673

Adjusted EBITDA (2)

87,627

49,275

—

136,902

Twenty-Six Week Period Ended

September 1, 2018:

Revenue

$
7,809,277

$
3,104,573

$
(103,998
)
$
10,809,852

Gross Profit

2,121,094

208,806

—

2,329,900

Adjusted EBITDA (2)

207,747

78,826

—

286,573

September 2, 2017

Revenue

$
7,874,193

$
3,006,072

$
(98,731
)
$
10,781,534

Gross Profit

2,115,382

208,234

—

2,323,616

Adjusted EBITDA (2)

165,078

97,874

—

262,952

(1)                                 Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis. In accordance with ASC 205-20, the Company reduced its intersegment eliminations to reflect the ongoing cash flows which are expected to continue between the Company and the Disposal Group of $32.4 million and $97.6 million for the thirteen and thirty-nine week periods ended December 2, 2017 and $32.4 million and $97.3 million for the thirteen and thirty-nine week periods ended November 26, 2016.

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

Retail Pharmacy Segment Results of Operations

Revenues and Other Operating Data

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Revenues

$
3,959,002

$
4,082,278

$
11,833,195

$
12,319,445

Revenue decline

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

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

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

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

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

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

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

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Same store front-end sales (decline) growth

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

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

$
88,886

$
138,903

$
264,253

$
428,864

Store data (Total):

Total stores (beginning of period)

4,507

4,550

4,536

4,561

New stores

1

3

3

10

Store acquisitions

—

1

—

3

Sold to WBA

(97
)

(97
)

Closed stores

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

4,404

4,547

4,404

4,547

Relocated stores

9

9

14

19

Remodeled and expanded stores

21

95

144

259

Store data (Discontinued Operations):

Total stores to be sold to WBA

1,932

1,932

1,932

1,932

Sold to WBA

(97
)
—

(97
)
—

Total stores remaining to be sold to WBA

1,835

1,932

1,835

1,932

Store data (Continuing Operations):

Total stores (end of period- Total)

4,404

4,547

4,404

4,547

Stores remaining to be sold to WBA

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

2,569

2,615

2,569

2,615

Thirteen Week Period Ended

Twenty-Six Week Period Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars in thousands)

Revenues

$
3,911,512

$
3,901,842

$
7,809,277

$
7,874,193

Revenue growth (decline)

0.2
%
(3.7
)%
(0.8
)%
(4.4
)%
Same store sales growth (decline)

1.0
%
(3.5
)%
0.1
%
(3.8
)%
Pharmacy sales growth (decline)

0.9
%
(5.5
)%
(0.2
)%
(5.7
)%
Same store prescription count growth (decline), adjusted to 30-day equivalents

1.1
%
(2.0
)%
(0.2
)%
(1.6
)%
Same store pharmacy sales growth (decline)

1.6
%
(4.9
)%
0.7
%
(5.1
)%
Pharmacy sales as a % of total retail sales

66.4
%
66.0
%
66.4
%
66.0
%
Front-end sales decline

(0.9
)%
(1.5
)%
(1.9
)%
(1.2
)%
Same store front-end sales decline

(0.1
)%
(0.8
)%
(1.0
)%
(1.0
)%
Front-end sales as a % of total retail sales

33.6
%
34.0
%
33.6
%
34.0
%
Adjusted EBITDA (*)

$
103,618

$
87,627

$
207,747

$
165,078

Store data:

Total stores (beginning of period)

2,533

2,591

2,550

2,605

New stores

1

1

1

1

Store acquisitions

—

—

—

—

Closed stores

(8
)
(17
)
(25
)
(31
)
Total stores (end of period)

2,526

2,575

2,526

2,575

Relocated stores

—

1

—

4

Remodeled and expanded stores

33

29

82

55

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

Revenues

Revenues ~~decreased 3.0%~~increased 0.2% for the thirteen weeks ended ~~December 2, 2017~~September 1, 2018 compared to a decrease of ~~3.1%~~3.7% for the thirteen weeks ended ~~November 26, 2016.~~September 2, 2017. The ~~decrease~~increase in revenues for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 was primarily a result of ~~the decrease~~an increase in pharmacy same store ~~sales.~~sales, partially offset by store closings.

Pharmacy same store sales ~~decreased~~increased by ~~3.5%~~1.6% for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 compared to ~~the 4.6%~~a 4.9% decrease infor the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. The ~~decrease~~increase in the current period is due primarily to the ~~2.4% decrease~~1.1% increase in same store prescription count compared to the prior year ~~period driven in part~~and brand inflation, partially offset by ~~being excluded from certain pharmacy networks that we participated in last year. Same store prescription sales were also impacted by continued lower reimbursement rates and~~ an approximate ~~2.0%~~1.0% negative impact from generic introductions ~~partially offset by~~and a decline in reimbursement rates. Same store prescription counts improved due to
cycling the impact of ~~brand drug inflation.~~certain commercial and governmental limited networks that we were excluded from in the prior year and the results of our clinical initiatives.

Front-end same store sales decreased ~~0.5%~~0.1% during the thirteen week period ended ~~December 2, 2017~~September 1, 2018 compared to a decrease of ~~0.3%~~0.8% during the thirteen week period ended ~~November 26, 2016.~~September 2, 2017.

Revenues decreased ~~3.9%~~0.8% for the ~~thirty-nine~~twenty-six weeks ended ~~December 2, 2017~~September 1, 2018 compared to a decrease of ~~1.7%~~4.4% for the ~~thirty-nine~~twenty-six weeks ended ~~November 26, 2016. The decrease in revenues for the thirty-nine week period ended December~~September 2, 2017 ~~was primarily a result of the decrease~~due mostly to store closings, partially offset by an increase in ~~pharmacy~~ same store pharmacy sales.

Pharmacy same store sales ~~decreased~~increased by ~~4.7%~~0.7% for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 compared to a 5.1% decrease for the ~~2.7% decrease in the thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~September 2, 2017. The increase in the current period is primarily due to an increase in brand inflation, partially offset by a slight decrease in same store prescription count and an approximate 1.2% negative impact from generic introductions.
Front-end same store sales decreased by 1.0% during the twenty-six week periods ended September 1, 2018 and September 2, 2017. The decline in the current period is due primarily to ~~continued lower reimbursement rates, an approximate 2.0% negative impact from generic introductions,~~a shorter Easter selling season and a ~~1.9% decrease in same store prescription count, partially offset by~~slow start to the ~~impact of brand drug inflation.~~allergy season.

~~Front-end same store sales decreased by 0.8% during the thirty-nine week period ended December 2, 2017 compared to the 0.4% increase in the thirty-nine week period ended November 26, 2016.~~
We include in same store sales all stores that have been open at least one year. Relocation stores are not included in same store sales until one year has lapsed.

Costs and Expenses

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars in thousands)

(dollars in thousands)

Cost of revenues

$
2,871,114

$
2,940,484

$
8,629,925

$
8,893,180

$
2,859,875

$
2,843,431

$
5,688,183

$
5,758,811

Gross profit

1,087,888

1,141,794

3,203,270

3,426,265

1,051,637

1,058,411

2,121,094

2,115,382

Gross margin

27.5
%
28.0
%
27.1
%
27.8
%

26.9
%
27.1
%
27.2
%
26.9
%
FIFO gross profit(*)

1,094,672

1,150,167

3,223,663

3,451,531

1,054,995

1,061,847

2,134,418

2,128,991

FIFO gross margin(*)

27.7
%
28.2
%
27.2
%
28.0
%

27.0
%
27.2
%
27.3
%
27.0
%
Selling, general and administrative expenses

1,086,857

1,095,409

3,235,309

3,311,655

1,068,944

1,066,411

2,133,331

2,148,452

Selling, general and administrative expenses as a percentage of revenues

27.5
%
26.8
%
27.34
%
26.9
%

27.3
%
27.3
%
27.3
%
27.3
%

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

Gross Profit and Cost of Revenues

Gross profit decreased ~~$53.9~~$6.8 million for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 as compared to the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Gross profit was negatively impacted by lower reimbursement rates that were ~~not fully~~partially offset by generic drug purchasing efficiencies and ~~a decrease in prescription count. Also impacting~~ the ~~decrease was a legal settlement of $9.0 million that benefited the prior year results.~~
Gross profit decreased $223.0 million for the thirty-nine week period ended December 2, 2017 as compared to the thirty-nine week period ended November 26, 2016. Gross profit was negatively impacted by the decrease in pharmacy gross profit due to lower reimbursement rates that were not fully offset by generic drug purchasing efficiencies and a decreaseincrease in prescription count.

Gross profit increased $5.7 million for the twenty-six week period ended September 1, 2018 as compared to the twenty-six week period ended September 2, 2017. Gross profit was positively impacted by the increase in same store pharmacy sales, improvement in generic drug purchasing costs that more than offset reimbursement rate declines.
Gross margin was ~~27.4%~~26.9% and ~~27.0%~~27.2% of sales for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~September 1, 2018, respectively, compared to ~~28.0%~~27.1% and ~~27.8%~~26.9% of sales for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~September 2, 2017, respectively. The decrease in gross margin for the thirteen ~~and thirty-nine~~ week period ended September 1, 2018 was due primarily to lower reimbursement rates that were not fully offset by generic drug purchasing ~~efficiencies, partially~~efficiencies. The improvement in gross margin for the twenty-six week period ended September 1, 2018 was due primarily to improvements in generic drug purchasing efficiency that more than offset ~~by a~~ lower ~~estimated LIFO charge.~~reimbursement rates.

We use the last-in, first-out (“LIFO”) method of inventory valuation, which is estimated on a quarterly basis and is finalized at year end when inflation rates and inventory levels are final. Therefore, LIFO costs for interim period financial statements are estimated. LIFO charges were ~~$6.8~~$3.4 million and ~~$20.4~~$13.3 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December 2, 2017,~~ September 1, 2018,
respectively, compared to ~~$8.4~~$3.4 million and ~~$25.3~~$13.6 million for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~November 26, 2016,~~September 2, 2017, respectively.

Selling, General and Administrative Expenses

SG&A expenses as a percentage of revenues were ~~27.5%~~27.3% in the thirteen week ~~period~~periods ended ~~December~~September 1, 2018 and September 2, 2017 compared to 26.8% in the thirteen week period ended November 26, 2016. The increase in SG&A as a percentage of revenues was due primarily to fixed costs increasing as a percentage of revenues, as revenues declined.2017. SG&A dollars decreased by ~~$8.6~~$2.5 million due primarily to TSA fees received from WBA of $23.2 million and various expense ~~efficiency initiatives that resulted in reduced payroll and operating expenses. The effect of these~~control initatives, ~~were~~ partially offset by the settlement of a litigation matter and higher ~~bonus expense of $10.0 million~~merger and ~~legal settlements of $6.0 million that benefited the prior year results.~~acquisition-related charges.

SG&A expenses as a percentage of revenues were ~~27.4%~~27.3% in the ~~thirty-nine~~twenty-six week ~~period~~periods ended ~~December~~September 1, 2018 and September 2, 2017 compared to 26.9% in the thirty-nine week period ended November 26, 2016. The increase in SG&A as a percentage of revenues was due primarily to fixed costs increasing as a percentage of revenues, as revenues declined.2017. SG&A dollars decreased by ~~$76.3~~$15.1 million primarily due to TSA fees received from WBA of $46.9 million and various expense ~~efficiency initiatives that resulted in reduced payroll~~control initatives, partially offset by the settlement of a litigation matter and ~~operating expenses.~~higher merger and acquisition-related charges.
Pharmacy Services Segment Results of Operations

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

Revenues and Other Operating Data

Thirteen Week Period Ended

Thirty-Nine Week Period Ended

Thirteen Week Period Ended

Twenty-Six Week Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars and plan
members in thousands)

(dollars in thousands)

Revenues

$
1,445,140

$
1,645,835

$
4,451,212

$
4,883,070

$
1,561,811

$
1,492,831

$
3,104,573

$
3,006,072

Revenue (decline) growth ~~(1)~~

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

4.6
%
(8.7
)%
3.3
%
(7.1
)%
Adjusted EBITDA(*)

$
40,363

$
52,431

$
138,237

$
143,616

$
44,963

$
49,275

$
78,826

$
97,874

Plan Members

3,780

4,062

3,780

4,062

(*)                                 See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” for additional details.
~~(1)~~                                 ~~The thirty-nine week period ended November 26, 2016 amount is labeled N/A as we do not have a full comparable period.~~

Revenues

Pharmacy Services segment ~~revenue~~revenues for the thirteen week period ended ~~December 2, 2017 was $1,445.1~~September 1, 2018 were $1,561.8 million as compared to ~~revenue~~revenues of ~~$1,645.8~~$1,492.8 million for the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Pharmacy Services segment ~~revenue~~revenues for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017 was $4,451.2~~September 1, 2018 were $3,104.6 million compared to ~~revenue~~revenues of ~~$4,883.1~~$3,006.1 million for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~September 2, 2017. The ~~decrease~~increase in the thirteen and ~~thirty-nine~~twenty-six week ~~revenue~~revenues for the segment is primarily due to ~~our election to participate~~an increase in ~~fewer~~ Medicare Part D ~~regions, which caused a decrease in covered lives at EIC, and a decline in commercial business.~~membership.

Costs and Expenses

Thirteen Week Period
Ended

Thirty-Nine Week Period
Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Cost of revenues

$
1,346,305

$
1,542,778

$
4,144,143

$
4,593,686

Gross profit

98,835

103,057

307,069

289,384

Gross margin

6.8
%
6.3
%
6.9
%
5.9
%
Selling, general and administrative expenses

79,657

73,237

233,989

212,195

Selling, general and administrative expenses as a percentage of revenues

5.5
%
4.4
%
5.3
%
4.3
%

Thirteen Week Period
Ended

Twenty-Six Week Period
Ended

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

(dollars in thousands)

Cost of revenues

$
1,452,297

$
1,389,569

$
2,895,767

$
2,797,838

Gross profit

109,514

103,262

208,806

208,234

Gross margin

7.0
%
6.9
%
6.7
%
6.9
%
Selling, general and administrative expenses

85,047

75,433

173,287

154,332

Selling, general and administrative expenses as a percentage of revenues

5.4
%
5.1
%
5.6
%
5.1
%
Gross Profit and Cost of Revenues

Gross profit for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 was ~~$98.8~~$109.5 million as compared to gross profit of ~~$103.1~~$103.3 million for the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Gross profit for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 was ~~$307.1~~$208.8 million as compared to gross profit of ~~$289.4~~$208.2 million for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~September 2, 2017. The ~~decrease~~increase in the thirteen week gross profit for the segment is due primarily to ~~reduced revenues caused by~~the increase in covered lives in our ~~election to participate in~~
~~fewer~~ Medicare Part D ~~regions and a decline~~membership, partially offset by margin compression in our commercial business. ~~The increase in the thirty-nine week gross~~Gross profit for the ~~segment is primarily~~twenty-six week period ended September 1, 2018 was flat to the prior year due to ~~improved customer mix.~~an increase in covered lives in our Medicare Part D membership, offset by margin compression in our commercial business.

Gross margin was ~~6.8%~~7.0% of sales for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 compared to ~~6.3%~~6.9% of sales for the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Gross margin was 6.7% of sales for the twenty-six week period ended September 1, 2018 compared to 6.9% of sales for the ~~thirty-nine~~twenty-six week period ended ~~December~~September 2, ~~2017 compared to 5.9% of sales for the thirty-nine week period ended November 26, 2016.~~2017. The ~~increase~~decrease in ~~the thirteen and thirty-nine week~~ gross margin for the ~~segment is~~thirteen and twenty-six week periods ended September 1, 2018 was due primarily to ~~improved~~margin compression in our commercial business and a change in customer mix.

Selling, General and Administrative Expenses

Pharmacy Services segment selling, general and administrative expenses for the thirteen week period ended ~~December 2, 2017~~September 1, 2018 was ~~$79.7~~$85.0 million or ~~5.5%~~5.4% of revenues as compared to ~~$73.2~~$75.4 million or ~~4.4%~~5.1% of revenues for the thirteen week period ended ~~November 26, 2016.~~September 2, 2017. Pharmacy Services segment selling, general and administrative expenses for the ~~thirty-nine~~twenty-six week period ended ~~December 2, 2017~~September 1, 2018 was ~~$234.0~~$173.3 million or ~~5.3%~~5.6% of revenues as compared to ~~$212.2~~$154.3 million or ~~4.3%~~5.1% of revenues for the ~~thirty-nine~~twenty-six week period ended ~~November 26, 2016.~~September 2, 2017. The increase in the thirteen and ~~thirty-nine~~twenty-six week period selling, general and administrative expenses is primarily the result of ~~increased headcount~~strategic investments in infrastructure to support ~~business infrastructure~~current year and ~~our growing chooser Medicare Part D business.~~future growth.

Liquidity and Capital Resources

General

We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under our Amended and Restated Senior Secured Credit Facility. Our principal uses of cash are to provide working capital for operations, to service our obligations to pay interest and principal on debt and to fund capital expenditures. Total liquidity as of ~~December 2, 2017~~September 1, 2018 was ~~$1,746.1~~$1,333.3 million, which consisted of revolver borrowing capacity of ~~$1,715.7~~$1,309.2 million and invested cash of ~~$30.4~~$24.1 million.

Credit Facilities

Our Amended and Restated Senior Secured Credit Facility has a borrowing capacity of ~~$3.7~~$2.7 billion (which reflects a prepayment and permanent reduction in commitments with a portion of the Sale proceeds) and matures in January 2020. Borrowings under the revolver bear interest at a rate per annum between (i) LIBOR plus 1.50% and LIBOR plus 2.00% with respect to Eurodollar borrowings and (ii) the alternate base rate plus 0.50% and the alternate base rate plus 1.00% with respect to ABR borrowings, in each case, based upon the ~~Average Revolver Availability~~average revolver availability (as defined in the Amended and Restated Senior Secured Credit Facility). We are required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the revolver, depending on the Average Revolver Availability (as defined in the Amended and Restated Senior Secured Credit Facility). Amounts drawn under the revolver become due and payable on January 13, 2020.

Our ability to borrow under the revolver is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At ~~December 2, 2017,~~September 1, 2018, we had ~~$1,925.0~~$1,335.0 million of borrowings outstanding under the revolver and had letters of credit outstanding against the revolver of ~~$59.3~~$55.8 million, which resulted in additional borrowing capacity of ~~$1,715.7~~$1,309.2 million. If at any time the total credit exposure outstanding under our Amended and Restated Senior Secured Credit Facility and the principal amount of our other senior obligations exceeds the borrowing base, we will be required to make certain other mandatory prepayments to eliminate such shortfall.

The Amended and Restated Senior Secured Credit Facility restricts us and all of our subsidiaries that guarantee our obligations under the Amended and Restated Senior Secured Credit Facility ~~second priority secured term loan facilities, secured guaranteed notes~~ and unsecured guaranteed notes (the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200.0 million at any time when revolving loans are outstanding (not including cash located in our store and lockbox deposit accounts and cash necessary to cover our current liabilities) and from accumulating cash on hand with revolver borrowings in excess of $100.0 million over three consecutive business days. The Amended and Restated Senior Secured Credit Facility also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a
representative of the senior obligations or the second priority debt) either (a) an event of default exists under our Amended and Restated Senior Secured Credit Facility or (b) the sum of revolver availability under our Amended and Restated Senior Secured Credit Facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than $275.0 million for three consecutive business days or less than or equal to $200.0 million on any day (a “cash sweep period”), the funds in our deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the Amended and Restated Senior Secured Credit Facility, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of our Amended and Restated Senior Secured Credit Facility.
The Amended and Restated Senior Secured Credit Facility allows us to have outstanding, at any time, up to $1.5 billion in secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended and Restated Senior Secured Credit Facility and existing indebtedness, provided that not in excess of $750.0 million of such secured second priority debt, split-priority term loan debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest of (a) the fifth anniversary of the effectiveness of the Amended and Restated Senior Secured Credit Facility and (b) the latest maturity date of any Term Loan or Other Revolving Loan (each as defined in the Amended and Restated Senior Secured Credit Facility) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date and, with respect to any escrow notes issued by Rite Aid, excluding any special mandatory redemption of the type described in clause (iii) of the definition of “Escrow Notes” in the Amended and Restated Senior Secured Credit Facility). Subject to the limitations described in clauses (a) and (b) of the immediately preceding sentence, the Amended and Restated Senior Secured Credit Facility additionally allows us to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended and Restated Senior Secured Credit Facility) is not in effect; provided, however, that certain of our other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Amended and Restated Senior Secured Credit Facility also contains certain restrictions on the amount of secured first priority debt we are able to incur. The Amended and Restated Senior Secured Credit Facility also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Amended and Restated Senior Secured Credit Facility is not in default and we maintain availability under our revolver of more than $365.0 million.

The Amended and Restated Senior Secured Credit Facility has a financial covenant that requires us to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (a) on any date on which availability under the revolver is less than $200.0 million or (b) on the third consecutive business day on which availability under the revolver is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250.0 million. As of ~~December 2, 2017,~~September 1, 2018, we had availability under our revolver of ~~$1,715.7~~$1,309.2 million, our fixed charge coverage ratio was greater than 1.00 to 1.00, and we were in compliance with the senior secured credit facility’s financial covenant. The Amended and Restated Senior Secured Credit Facility also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, sale of assets, mergers and acquisitions and the granting of liens.

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

~~We also have two second priority secured term loan facilities, the Tranche 1 Term Loan and the Tranche 2 Term Loan.~~ The Tranche 1 Term Loan matures on August 21, 2020 and currently bears interest at a rate per annum equal to LIBOR plus 4.75% with a LIBOR floor of 1.00%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 3.75%. The Tranche 2 Term Loan matures on June 21, 2021 and currently bears interest at a rate per annum equal to LIBOR plus 3.875% with a LIBOR floor of 1.00%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 2.875%.
~~The second priority secured term loan facilities and the indentures~~indenture that ~~govern~~governs our ~~secured and~~ guaranteed unsecured notes ~~contain~~contains restrictions on the amount of additional secured and unsecured debt that can be incurred by us. As of ~~December 2, 2017,~~September 1, 2018, the amount of additional secured debt that could be incurred under the most restrictive covenant of the ~~second priority secured term loan facilities and these indentures~~indenture was approximately ~~$2.1~~$1.7 billion (which amount does not include the ability to enter into certain sale and leaseback transactions). Assuming a fully drawn revolver and the outstanding letters of credit, we could incur an additional $350.0 million in secured debt. The ability to issue additional unsecured debt under ~~these indentures~~the indenture is generally governed by an interest coverage ratio test. As of ~~December 2, 2017,~~September 1, 2018, we had the ability to issue additional unsecured debt under ~~the second lien credit facilities and~~our other indentures.

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

Cash flow used in operating activities was $300.9 million compared to cash flow provided by operating activities ~~was $424.5 million and $173.2~~of $295.5 million in the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively. Operating cash flow was ~~positively~~negatively impacted by the ~~$325.0 million WBA merger termination fee,~~timing of working capital items, including a build in the ~~corresponding change~~current year CMS receivable, which was not funded by reinsurance as in ~~deferred taxes,~~the prior year, and ~~an increase in accounts payable. Accounts payable increased due to~~ the timing of ~~inventory purchases at our Retail Pharmacy segment and increased amounts payable~~payments to our pharmacy network in our Pharmacy Services ~~segment. These positive working capital changes were partially offset by increases in~~segment, as well as the timing of accounts receivable from third party vendors, seasonal inventory build and the payments of accrued wages, benefits and other ~~assets and liabilities. Front end inventory increased at~~personnel costs in our Retail Pharmacy ~~segment~~ ~~due to seasonal inventory build.~~segment. Cash ~~used~~flow from operating activity for the twenty-six week period ended September 2, 2017 was favorably impacted by ~~other assets and liabilities resulted from reductions in accrued expenses relating to payments made under our CMS reinsurance contracts at our Pharmacy Services segment.~~the $325.0 million Walgreens Boots Alliance merger termination fee.
Cash used in investing activities was ~~$138.1~~$94.8 million and ~~$223.5~~$67.8 million for the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ respectively. Cash used ~~for the purchase of property, plant, and equipment~~in investing activities was ~~lower~~higher than in the prior year ~~primarily~~ due to ~~fewer~~an increase in Wellness store remodels ~~in the current year. Included in cash provided by investing activities of discontinued operations is $240.9 million of proceeds received from stores sold to Walgreens Boots Alliance. A corresponding payment to the revolver is included in the financing activities of discontinued operations.~~and prescription file buys.

Cash ~~used in financing activities was $243.5 million for the thirty-nine week period ended December 2, 2017 as compared to cash~~flow provided by financing activities ~~of $299.9~~was $883.2 million for the thirty-nine week period ended November 26, 2016. Cash used in financing activities for the thirty-nine week period ended December 2, 2017 reflects net payments on the revolver and scheduled payments on our long-term debt and capital leases. As noted above,compared to cash flow used in financing activities of ~~discontinued operations includes $240.9~~$188.1 million for the twenty-six week periods ended September 1, 2018 and September 2, 2017, respectively. Cash provided by financing activities resulted from net revolver proceeds which, combined with Sale proceeds, were used to fully repay our 9.25% notes, our 6.75% notes and a portion of ~~revolver payments~~our 6.125% notes.

Capital Expenditures

During the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017 ~~and November 26, 2016~~ capital expenditures were as follows:

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

Thirteen Week
Period Ended

Twenty-Six Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

September 1,
2018

September 2,
2017

September 1,
2018

September 2,
2017

New store construction, store relocation and store remodel projects

$
25,990

$
36,087

$
64,466

$
96,660

$
20,986

$
20,671

$
45,875

$
38,476

Technology enhancements, improvements to distribution centers and other corporate requirements

35,710

18,672

76,350

101,063

23,608

20,120

46,690

40,640

Purchase of prescription files from other retail pharmacies

10,522

13,573

20,201

35,986

6,864

4,158

20,519

9,679

Total capital expenditures

$
72,222

$
68,332

$
161,017

$
233,709

$
51,458

$
44,949

$
113,084

$
88,795

Future Liquidity

We are highly leveraged. Our high level of indebtedness could: (i) limit our ability to obtain additional financing; (ii) limit our flexibility in planning for, or reacting to, changes in our business and the industry; (iii) place us at a competitive disadvantage relative to our competitors with less debt; (iv) render us more vulnerable to general adverse economic and industry conditions; and (v) require us to dedicate a substantial portion of our cash flow to service our debt. Based upon our current levels of operations, we believe that cash flow from operations together with available borrowings under the revolver and other sources of liquidity will be adequate to meet our requirements for working capital, debt service and capital expenditures at least for the next twelve months. Based on our liquidity position, which we expect to remain strong throughout the year, we do not expect to be subject to the fixed charge covenant in our Amended and Restated Senior Secured Credit Facility in the next twelve months. We will continue to assess our liquidity position and potential sources of supplemental liquidity in light of our operating performance, and other relevant circumstances. From time to time, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for shares of common stock, issuance of equity (including preferred stock and convertible securities), repurchase or redemption of outstanding indebtedness, or seek to refinance our outstanding debt (including our Amended and Restated Senior Secured Credit Facility) or may otherwise seek transactions to reduce interest expense and extend debt ~~maturities.~~maturities, particularly following the Sale and implementation of our strategies following the termination of the Merger. Any of these transactions could impact our financial results. We may also use additional Sale proceeds for one or more of these purposes in accordance with our outstanding agreements. Certain of these deleveraging and refinancing activities were limited by the Merger Agreement and we are no longer subject to such restrictions.

Critical Accounting Policies and Estimates

For a description of the critical accounting policies that require the use of significant judgments and estimates by management, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” included in our Fiscal ~~2017~~2018 10-K.

Factors Affecting Our Future Prospects

For a discussion of risks related to our financial condition, operations and industry, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Fiscal ~~2017~~2018 10-K.
Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures

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

The following is a reconciliation of our net (loss) income to Adjusted EBITDA from continuing operations for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017:

Thirteen Week
Period Ended

Twenty-Six Week
Period Ended

September 1,
2018

September 2,
2017(a)

September 1,
2018

September 2,
2017(a)

(dollars in thousands)

Net (loss) income

$
(352,348
)
$
188,360

$
(394,075
)
$
152,323

Interest expense

56,233

50,857

119,025

101,857

Income tax (benefit) expense

(106,559
)
117,450

(116,056
)
105,329

Depreciation and amortization expense

89,743

95,655

184,272

196,684

LIFO charge

3,358

3,436

13,324

13,609

Lease termination and impairment charges

39,609

3,113

49,468

7,151

Goodwill and intangible asset impairment charges

375,190

—

375,190

—

Loss on debt retirements, net

—

—

554

—

Merger and Acquisition-related costs

19,031

9,632

26,219

10,848

Stock based compensation expense

5,215

6,324

10,246

15,362

Inventory write-downs related to store closings

1,300

1,348

5,133

3,766

Litigation settlement

18,000

—

18,000

—

Gain on sale of assets, net

(4,965
)
(14,951
)
(10,824
)
(20,828
)
Walgreens Boots Alliance merger termination fee

—

(325,000
)
—

(325,000
)
Other

4,774

678

6,097

1,851

Adjusted EBITDA

$
148,581

$
136,902

$
286,573

$
262,952

(a)         During the thirteen week period ended September 1, 2018, we revised our definition of Adjusted EBITDA to no longer exclude the impact of revenue deferrals related to its customer loyalty program and further revised its disclosure by presenting certain amounts previously included within Other as separate reconciling items. Consequently, we revised Adjusted EBITDA for the thirteen and twenty-six week periods ended September 2, 2017 to conform with the revised definition and ~~November 26, 2016:~~present separate reconciling items previously included with Other.

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net (loss) income — continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

Interest expense

50,308

50,304

152,165

146,674

Income tax (benefit) expense

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

(3,824
)
Depreciation and amortization expense

95,764

101,953

292,448

304,460

LIFO charge

6,784

8,373

20,393

25,266

Lease termination and impairment charges

3,939

7,199

11,090

20,203

Walgreens Boots Alliance merger termination fee

—

—

(325,000
)
—

Other

6,697

4,577

27,985

50,567

Adjusted EBITDA — continuing operations

$
129,249

$
191,334

$
402,490

$
572,480

Adjusted EBITDA — discontinued operations

84,926

82,813

217,519

300,322

Adjusted EBITDA

$
214,175

$
274,147

$
620,009

$
872,802

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net income — discontinued operations

$
99,213

$
(8,600
)
$
42,257

$
(3,939
)
Interest expense

59,456

56,005

178,797

170,136

Income tax expense (benefit)

60,155

(3,405
)
26,705

356

Depreciation and amortization expense

21,952

41,292

99,372

119,624

LIFO charge

4,469

5,377

13,366

15,995

Lease termination and impairment charges

11

66

74

76

Gain on stores sold to Walgreens Boots Alliance

(157,010
)
—

(157,010
)

Other

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

(1,926
)
Adjusted EBITDA - discontinued operations

$
84,926

$
82,813

$
217,519

$
300,322

The following is a reconciliation of our net income (loss) from continuing operations to Adjusted Net (Loss) Income and Adjusted Net (Loss) Income per Diluted Share for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, ~~2017 and November 26, 2016.~~2017. Adjusted Net Income (Loss) is defined as net income (loss) excluding the impact of amortization ~~of EnvisionRx intangible assets,~~expense, merger and acquisition-related costs, a non-recurring litigation settlement (as further discussed below), loss on debt retirements, LIFO adjustments (which removes the entire impact of LIFO, and results as if we were on a FIFO inventory basis), goodwill and intangible asset impairment charges and the ~~Walgreens Boots Alliance~~WBA merger termination fee. We calculate Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of Adjusted Net Income (Loss). We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share ~~serve as appropriate measures~~are useful indicators of our operating performance over multiple periods. Adjusted Net Income (Loss) per Diluted Share is calculated using our above-referenced definition of Adjusted Net Income (Loss):

Thirteen Week
Period Ended

Twenty-Six Week
Period Ended

September 1,
2018

September 2,
2017(b)

September 1,
2018

September 2,
2017(b)

(dollars in thousands)

Net (loss) income

$
(352,348
)
$
188,360

$
(394,075
)
$
152,323

Add back—Income tax (benefit) expense

(106,559
)
117,450

(116,056
)
105,329

(Loss) income before income taxes

(458,907
)
305,810

(510,131
)
257,652

Adjustments:

Amortization expense

32,500

36,321

67,900

77,283

LIFO charge

3,358

3,436

13,324

13,609

Goodwill and intangible asset impairment charges

375,190

—

375,190

—

Loss on debt retirements, net

—

—

554

—

Merger and Acquisition-related costs

19,031

9,632

26,219

10,848

Litigation settlement

18,000

—

18,000

—

Walgreens Boots Alliance merger termination fee

—

(325,000
)
—

(325,000
)
Adjusted (loss) income before income taxes

(10,828
)
30,199

(8,944
)
34,392

Adjusted income tax (benefit) expense (a)

(2,951
)
12,838

(2,437
)
14,621

Adjusted net (loss) income

$
(7,877
)
$
17,361

$
(6,507
)
$
19,771

Net (loss) income per diluted share

$
(0.33
)
$
0.18

$
(0.37
)
$
0.14

Adjusted net (loss) income per diluted share

$
(0.01
)
$
0.02

$
(0.01
)
$
0.02

(a)                                 The fiscal year 2019 and 2018 annual effective tax rates, calculated using a federal rate plus a net state rate that excluded the impact of state NOL’s, state credits and valuation allowance, was used for the thirteen and twenty-six weeks ended September 1, 2018 and September 2, 2017, respectively.
(b)                                 During the thirteen week period ended September 1, 2018, we revised our definition of Adjusted Net Loss and Adjusted Net Loss per Diluted Share to exclude the impact of all amortization expense rather than only the impact of amortization expense related to the EnvisionRx intangible assets. Consequently, we have updated the Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share for the twenty-six week period ended September 1, 2018, and for the thirteen and twenty-six week periods ended September 2, 2017 to be ~~used in evaluating the performance~~reflective of our ~~business~~modified definition.
We have in the past and may in the future be involved in litigation, claims and proceedings that result in legal settlements or similar payments. We have historically not made adjustments for amounts related to these matters when calculating Adjusted EBITDA and Adjusted Net Income (Loss). Given the non-recurring nature of a material legal settlement incurred in the current period, we have added the amount of this settlement back to net income when calculating Adjusted EBITDA and Adjusted Net Income (Loss) for the thirteen week period ended September 1, 2018 tohelp ~~our~~ investors better compare our operating performance over multiple periods.

Thirteen Week
Period Ended

Thirty-Nine Week
Period Ended

December 2,
2017

November 26,
2016

December 2,
2017

November 26,
2016

(dollars in thousands)

Net (loss) income from continuing operations

$
(18,182
)
$
23,610

$
134,141

$
29,134

Add back—Income tax (benefit) expense

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

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

(34,243
)
18,928

223,409

25,310

Adjustments:

Amortization of EnvisionRx intangible assets

19,139

21,049

59,415

62,217

LIFO charge

6,784

8,373

20,393

25,266

Merger and Acquisition-related costs

6,550

1,964

17,274

6,117

Walgreens Boots Alliance merger termination fee

—

—

(325,000
)
—

Adjusted (loss) income before income taxes — continuing operations

(1,770
)
50,314

(4,509
)
118,910

Adjusted income tax (benefit) expense (a)

(3,389
)
23,559

5,573

54,183

Adjusted net income (loss) from continuing operations

$
1,619

$
26,755

$
(10,082
)
$
64,727

Net (loss) income per diluted share — continuing operations

$
(0.02
)
$
0.02

$
0.13

$
0.03

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

$
0.00

$
0.03

$
(0.01
)
$
0.06

~~(a)~~                                 ~~The fiscal year 2018 and 2017 annual effective tax rates, adjusted~~ For additional information regarding the settlement see Note 14 to ~~exclude amortization of EnvisionRx intangible assets, LIFO charges, Merger and Acquisition-related costs and~~ the ~~Walgreens Boots Alliance merger termination fee from book income, are used for the thirteen and thirty-nine weeks ended December 2, 2017 and November 26, 2016, respectively.~~consolidated financial statements.

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

We include these non-GAAP financial measures in our earnings announcements in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors including with those of our competitors having different capital structures. Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share or other non-GAAP measures should not be considered in isolation from, and are not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Our definition of these non-GAAP measures may not be comparable to similarly titled measurements reported by other companies.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as of ~~December 2, 2017.~~September 1, 2018.

Fiscal Year

2018

2019

2020

2021

2022

Thereafter

Total

Fair Value
at
12/02/2017

(dollars in thousands)

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

Fixed Rate

$
90

$
—

$
—

$
902,000

$
810,000

$
2,223,000

$
3,935,090

$
3,691,346

Average Interest Rate

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

Variable Rate

$
—

$
—

$
1,925,000

$
470,000

$
500,000

$
—

$
2,895,000

$
2,897,387

Average Interest Rate

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

Fiscal Year

2019

2020

2021

2022

2023

Thereafter

Total

Fair Value
at
09/01/2018

(dollars in thousands)

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

Fixed Rate

$
90

$
—

$
—

$
—

$
—

$
2,176,490

$
2,176,580

$
1,896,901

Average Interest Rate

7.61
%
0.00
%
0.00
%
0.00
%
0.00
%
6.38
%
6.38
%

Variable Rate

$
—

$
1,335,000

$
—

$
—

$
—

$
—

$
1,335,000

$
1,335,000

Average Interest Rate

0.00
%
3.60
%
0.00
%
0.00
%
0.00
%
0.00
%
3.60
%

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

The interest rate on our variable rate borrowings, which include our revolving credit facility, ~~Tranche 1 Term Loan and our Tranche 2 Term Loan,~~ are ~~all~~ based on LIBOR. ~~However, the interest rate on our Tranche 1 Term Loan and Tranche 2 Term Loan have a LIBOR floor of 100 basis points.~~ If the market rates of interest for LIBOR changed by 100 basis points as of ~~December 2, 2017,~~September 1, 2018, our annual interest expense would change by approximately ~~$31.0~~$13.4 million.

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

ITEM 4. Controls and Procedures

(a) Disclosure Controls and Procedures

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

(b) Changes in Internal Control over Financial Reporting

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

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

In addition to the information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Fiscal ~~2017~~2018 10-K, which could materially affect our business, financial condition or future results.

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

Issuer Repurchases of Equity Securities. The table below is a listing of repurchases of common stock during the ~~third~~second quarter of fiscal ~~2018.~~2019.

Fiscal period:

Total
Number of
Shares
Repurchased

Average
Price Paid
Per Share

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

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

September 3 to September 30, 2017(1)

12

$
2.64

—

—

October 1 to October 28, 2017

—

$
—

—

—

October 29 to December 2, 2017

—

$
—

—

—

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

Total
Number of
Shares
Repurchased

Average
Price Paid
Per Share

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

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

June 3 to June 30, 2018

394

$
2.02

—

—

July 1 to July 28, 2018

867

$
1.67

—

—

July 29 to September 1, 2018

—

$
—

—

—

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

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

Exhibit
Numbers

Description

Incorporation By Reference To
2.1

Amended and Restated Asset Purchase Agreement, dated September 18, 2017, among Rite Aid Corporation, Walgreens Boots Alliance, Inc. and Walgreen Co.

Exhibit 2.1 to Form 8-K, filed on September 19, 2017
2.2
Agreement and Plan of Merger, dated February 18, 2018, among Rite Aid Corporation, Albertsons Companies, Inc., Ranch Acquisition II LLC and Ranch Acquisition Corp.
Exhibit 2.1 to Form 8-K, filed on February 20, 2018
2.3
Termination Agreement, dated as of August 8, 2018, among Rite Aid Corporation, Albertsons Companies, Inc., Ranch Acquisition II LLC and Ranch Acquisition Corp.
Exhibit 2.1 to Form 8-K, filed on August 8, 2018
3.1

Amended and Restated Certificate of Incorporation, dated January 22, 2014

Exhibit 3.1 to Form 10-K, filed on April 23, 2014
3.2

Amended and Restated By-Laws

Exhibit 3.2 to Form 10-Q, filed on January 6, 2016
3.3

Certificate of Designations, Preferences and Rights of Series J Junior Participating Preferred Stock of Rite Aid Corporation

Exhibit ~~31.~~3.1 to Form 8-K, filed on January 3, 2018
~~4.1~~Exhibit
Numbers
Indenture, dated as of February 27, 2012, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee, related to the Company’s 9.25% Senior Notes due 2020Description
~~Exhibit 4.1 to Form 8-K, filed on February 27, 2012~~Incorporation By Reference To
~~4.2~~
First Supplemental Indenture, dated as of May 15, 2012, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Mellon Trust Company, N.A. to the Indenture, dated as of February 27, 2012, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., related to the Company’s 9.25% Senior Notes due 2020
~~Exhibit 4.23 to the Registration Statement on Form S-4, File No. 181651, filed on May 24, 2012~~
~~4.3~~4.1

Indenture, dated as of August 1, 1993, between Rite Aid Corporation, as issuer, and Morgan Guaranty Trust Company of New York, as trustee, related to the Company’s 7.70% Notes due 2027

Exhibit 4A to Registration Statement on Form S-3, File No. 033-63794, filed on June 3, 1993
~~4.4~~4.2

Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and U.S. Bank Trust National Association (as successor trustee to Morgan Guaranty Trust Company of New York) to the Indenture dated as of August 1, 1993, between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, relating to the Company’s 7.70% Notes due 2027

Exhibit 4.1 to Form 8-K filed on February 7, 2000
~~4.5~~4.3

Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company’s 6.875% Notes due 2028

Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999
~~4.6~~4.4

Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and Harris Trust and Savings Bank to the Indenture, dated December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank, related to the Company’s 6.875% Notes due 2028

Exhibit 4.4 to Form 8-K, filed on February 7, 2000
~~4.7~~4.5

~~Indenture,~~Registration Rights Agreement, dated as of ~~July 2, 2013,~~February 10, 2015, by and among Rite Aid Corporation, ~~as issuer, the subsidiary guarantors named therein~~TPG VI Envision, L.P., TPG VI DE BDH, L.P. and ~~The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.75% Senior Notes due 2021~~Envision Rx Options Holdings Inc.

Exhibit ~~4.1~~10.3 to Form 8-K, filed on ~~July 2, 2013~~February 13, 2015
~~4.8~~4.6

Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023

Exhibit 4.1 to Form 8-K, filed on April 2, 2015
4.7
Registration Rights Agreement, dated as of April 2, 2015, among Rite Aid Corporation, the subsidiary guarantors named therein and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC, Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co., as the initial purchasers of the Company’s 6.125% Senior Notes due 2023
Exhibit 10.1 to Form 8-K, filed on April 2, 2015
4.8
Supplemental Indenture, dated as of August 23, 2018, among Rite Aid Corporation, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of April 2, 2015, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., related to the Company’s 6.125% Senior Notes due 2023.
Exhibit 4.1 to Form 8-K filed on August 23, 2018
4.9

Tax Benefits Preservation Plan, dated as of January 3, 2018, between Rite Aid Corporation and Broadridge Corporate Issuer Solutions

Exhibit 4.1 to Form 8-K, filed on January 3, 2018
4.10

Specimen Common Stock Certificate

Exhibit 4.2 to Form 8-K, filed on January 3, 2018
4.11
Certificate of Designations, Preferences and Rights of Series J Junior Participating Preferred Stock of Rite Aid Corporation
Exhibit 3.1 to Form 8-K, filed on January 3, 2018
4.12
Certificate of Elimination of Series J Junior Participating Preferred Stock of Rite Aid Corporation
Exhibit 3.4 to Form 8-A/A, filed on March 28, 2018
4.13
First Amendment to Tax Benefits Preservation Plan, dated as of March 27, 2018, by and between Rite Aid Corporation and Broadridge Corporate Issuer Solutions
Exhibit 4.2 to Form 8-A/A, filed on March 28, 2018
10.1
2000 Omnibus Equity Plan
Included in Proxy Statement dated October 24, 2000
10.2
2001 Stock Option Plan
Exhibit 10.3 to Form 10-K, filed on May 21, 2001
10.3
2004 Omnibus Equity Plan
Exhibit 10.4 to Form 10-K, filed on April 29, 2005
10.4
2006 Omnibus Equity Plan
Exhibit 10 to Form 8-K, filed on January 22, 2007
10.5
2010 Omnibus Equity Plan
Exhibit 10.1 to Form 8-K, filed on June 25, 2010
10.6
Amendment No. 1, dated September 21, 2010, to the 2010 Omnibus Equity Plan
Exhibit 10.7 to Form 10-Q, filed on October 7, 2010
Exhibit
Numbers
Description
Incorporation By Reference To
10.7
Amendment No. 2, dated January 16, 2013, to the 2010 Omnibus Equity Plan
Exhibit 10.8 to Form 10-K, filed on April 23, 2013
10.8
2012 Omnibus Equity Plan
Exhibit 10.1 to Form 8-K, filed on June 25, 2012
10.9
Amendment No. 1, dated January 16, 2013, to the 2012 Omnibus Equity Plan
Exhibit 10.10 to Form 10-K, filed on April 23, 2013
10.10
2014 Omnibus Equity Plan
Exhibit 10.1 to Form 8-K, filed on June 23, 2014
10.11
Form of Award Agreement
Exhibit 10.2 to Form 8-K, filed on May 15, 2012
10.12
Supplemental Executive Retirement Plan
Exhibit 10.6 to Form 10-K, filed on April 28, 2010
10.13
Executive Incentive Plan for Officers of Rite Aid Corporation
Exhibit 10.1 to Form 8-K, filed on February 24, 2012
10.14
Amended and Restated Employment Agreement by and between Rite Aid Corporation and John T. Standley, dated as of January 21, 2010
Exhibit 10.7 to Form 10-K, filed on April 28, 2010
10.15
Employment Agreement by and between Rite Aid Corporation and Douglas E. Donley, dated as of August 1, 2000
Exhibit 10.1 to Form 10-Q, filed on December 22, 2005
10.16
Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and Douglas E. Donley, dated as of December 18, 2008
Exhibit 10.4 to Form 10-Q, filed on January 7, 2009
10.17
Rite Aid Corporation Special Executive Retirement Plan
Exhibit 10.15 to Form 10-K, filed on April 26, 2004
10.18
Employment Agreement by and between Rite Aid Corporation and Ken Martindale, dated as of December 3, 2008
Exhibit 10.7 to Form 10-Q, filed on January 7, 2009
10.19
Letter Agreement, dated July 27, 2010, to the Employment Agreement by and between Rite Aid Corporation and Ken Martindale, dated as of December 3, 2008
Exhibit 10.6 to Form 10-Q, filed on October 7, 2010
10.20
Amendment to Employment Agreement by and between Rite Aid Corporation and Kenneth Martindale dated as of October 26, 2015
Exhibit 10.4 to Form 10-Q, filed on January 6, 2016
10.21
Amended and Restated Employment Agreement, dated as of June 23, 2011, between Rite Aid Corporation and Enio A. Montini, Jr.
Exhibit 10.1 to Form 10-Q, filed on October 5, 2011
10.22
Employment Agreement, dated as of March 24, 2014, by and between Rite Aid Corporation and Dedra N. Castle
Exhibit 10.2 to Form 10-Q, filed on July 3, 2014
10.23
Employment Agreement, dated as of July 24, 2014, by and between Rite Aid Corporation and Darren W. Karst
Exhibit 10.2 to Form 10-Q, filed on October 2, 2014
10.24
Letter Agreement, dated October 26, 2015, to the Employment Agreement by and between Rite Aid Corporation and Darren W. Karst, dated as of July 24, 2014
Exhibit 10.1 to Form 8-K, filed on October 28, 2015
10.25
Employment Agreement by and between Rite Aid Corporation and Jocelyn Konrad dated as of August 18, 2015
Exhibit 10.1 to Form 10-Q, filed on January 6, 2016
10.26
Employment Agreement by and between Rite Aid Corporation and Bryan Everett dated as of June 22, 2015
Exhibit 10.2 to Form 10-Q, filed on January 6, 2016
10.27
Employment Agreement by and between Rite Aid Corporation and David Abelman dated as of August 3, 2015
Exhibit 10.3 to Form 10-Q, filed on January 6, 2016
10.28
Form of Retention Award Agreement
Exhibit 10.1 to Form 8-K, filed on January 7, 2016
10.29
Form of December 31, 2015 Retention Award Agreement
Exhibit 10.2 to Form 8-K, filed on January 7, 2016
10.30
Amended and Restated Credit Agreement, dated as of June 27, 2001, as amended and restated as of January 13, 2015, among Rite Aid Corporation, the lenders from time to time party thereto and Citicorp North America, Inc., as administrative agent and collateral agent.
Exhibit 10.1 to Form 8-K, filed on January 14, 2015
10.31
First Amendment to Amended and Restated Credit Agreement, dated as of February 10, 2015, among Rite Aid Corporation, the lenders signatory thereto and Citicorp North America, Inc., as administrative agent and collateral agent.
Exhibit 10.1 to Form 8-K, filed on February 13, 2015
10.32
Amended and Restated Collateral Trust and Intercreditor Agreement, including the related definitions annex, dated as of June 5, 2009, among Rite Aid
Exhibit 10.3 to Form 8-K, filed on June 11, 2009
Exhibit
Numbers
Description
Incorporation By Reference To
Corporation, each subsidiary named therein or which becomes a party thereto, Wilmington Trust Company, as collateral trustee, Citicorp North America, Inc., as senior collateral processing agent, The Bank of New York Trust Company, N.A., as trustee under the 2017 7.5% Note Indenture (as defined therein) and The Bank of New York Mellon Trust Company, N.A., as trustee under the 2016 10.375% Note Indenture (as defined therein), and each other Second Priority Representative and Senior Representative which becomes a party thereto
10.33
Amended and Restated Senior Subsidiary Guarantee Agreement, dated as of June 5, 2009 among the subsidiary guarantors party thereto and Citicorp North America, Inc., as senior collateral agent
Exhibit 10.4 to Form 8-K, filed on June 11, 2009
10.34
Amended and Restated Senior Subsidiary Security Agreement, dated as of June 5, 2009, by the subsidiary guarantors party thereto in favor of the Citicorp North America, Inc., as senior collateral agent
Exhibit 10.5 to Form 8-K, filed on June 11, 2009
10.35
Amended and Restated Senior Indemnity, Subrogation and Contribution Agreement, dated as of May 28, 2003, and supplemented as of September 27, 2004, among Rite Aid Corporation, the Subsidiary Guarantors, and Citicorp North America, Inc. and JPMorgan Chase Bank, N.A., as collateral processing co-agents
Exhibit 4.27 to Form 10-K, filed on April 29, 2008
10.36
Second Priority Subsidiary Guarantee Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, and as supplemented as of January 5, 2005, among the Subsidiary Guarantors and Wilmington Trust Company, as collateral agent
Exhibit 4.36 to Form 10-K, filed on April 17, 2009
10.37
Second Priority Subsidiary Security Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, as supplemented as of January 5, 2005, and as amended in the Reaffirmation Agreement and Amendment dates as of January 11, 2005, by the Subsidiary Guarantors in favor of Wilmington Trust Company, as collateral trustee
Exhibit 4.37 to Form 10-K, filed on April 17, 2009
10.38
Amended and Restated Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of May 28, 2003, and as supplemented as of January 5, 2005, among the Subsidiary Guarantors and Wilmington Trust Company, as collateral agent
Exhibit 4.33 to Form 10-K, filed on April 29, 2008
10.39
Intercreditor Agreement, dated as of February 18, 2009, by and among Citicorp North America, Inc. and Citicorp North America, Inc., and acknowledged and agreed to by Rite Aid Funding II
Exhibit 10.2 to Form 8-K, filed on February 20, 2009
10.40
Senior Lien Intercreditor Agreement dated as of June 12, 2009, among Rite Aid Corporation, the subsidiary guarantors named therein, Citicorp North America, Inc., as senior collateral agent for the Senior Secured Parties (as defined therein), Citicorp North America, Inc., as senior representative for the Senior Loan Secured Parties (as defined therein), The Bank of New York Mellon Trust Company, N.A., as Senior Representative (as defined therein) for the Initial Additional Senior Debt Parties (as defined therein), and each additional Senior Representative from time to time party thereto
Exhibit 10.2 to Form 8-K, filed on June 16, 2009
10.41
Standstill Agreement, dated as of February 18, 2018, among Rite Aid Corporation, Albertsons Companies, Inc. and Cerberus Capital Management, L.P.
Exhibit 10.1 to Form 8-K, filed on February 20, 2018
11

Statement regarding computation of earnings per share (See Note 4 to the ~~condensed~~ consolidated financial statements)

Filed herewith
31.1

Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

Filed herewith
31.2

Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

Filed herewith
32

Certification of CEO and CFO pursuant to 18 United States Code, Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith
101.

The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) ~~Condensed~~ Consolidated Balance Sheets at ~~December 2, 2017~~September 1, 2018 and March ~~4, 2017,~~3, 2018, (ii) ~~Condensed~~ Consolidated Statements of Operations for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ (iii) ~~Condensed~~ Consolidated Statements of Comprehensive Income for the thirteen and ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017, ~~and November 26, 2016,~~ (iv) ~~Condensed~~ Consolidated Statements of Cash Flows for the ~~thirty-nine~~twenty-six week periods ended ~~December~~September 1, 2018 and September 2, 2017 and ~~November 26, 2016 and~~ (v) Notes to ~~Condensed~~ Consolidated Financial Statements, tagged in detail.

SIGNATURES

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

Date: ~~January 11,~~October 4, 2018
RITE AID CORPORATION

By:
/s/ DARREN W. KARST

Darren W. Karst

Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Date: ~~January 11,~~October 4, 2018
By:
/s/ MATTHEW C. SCHROEDER

Matthew C. Schroeder

Senior Vice President, Chief Accounting Officer and Treasurer

5755

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

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

In thousands	For the thirteen week period ended September 1, 2018			For the twenty-six week period ended September 1, 2018
Retail Pharmacy segment:
Pharmacy sales	$	2,573,909		$	5,139,194
Front end sales	1,301,062			2,597,209
Other revenue	36,541			72,874
Total Retail Pharmacy segment	$	3,911,512		$	7,809,277

Pharmacy Services segment	1,561,811			3,104,573
Intersegment elimination	(51,961		)	(103,998		)
Total revenue	$	5,421,362		$	10,809,852

	Impact of Change in Accounting Policy
	As Reported						Adjusted
In thousands	March 3, 2018			Adjustments			March 4, 2018
Condensed Consolidated Balance Sheet:
Accounts receivable, net	$	1,869,100		$	(57,897	)	$	1,811,203
Inventories, net	1,799,539			51,121			1,850,660
Deferred tax assets	594,019			(1,772		)	592,247
Total assets	8,989,327			(8,548		)	8,980,779
Accumulated deficit	(4,282,471		)	(8,548		)	(4,291,019		)
Total shareholders’ equity	1,601,010			(8,548		)	1,592,462

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

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

	December 2, 2017		March 4, 2017
Inventories	$	1,071,253	$	1,047,670
Property and equipment	666,118		—
Goodwill (a)	30,994		—
Intangible assets	96,461		—
Other assets	3,302		—
Current assets held for sale	$	1,868,128	$	1,047,670
Property and equipment	$	—	$	725,230
Goodwill (a)	—		32,632
Intangible assets	—		120,389
Other assets	—		4,017
Noncurrent assets held for sale	$	—	$	882,268
Current maturities of long-term lease financing obligations	$	1,908	$	3,626
Accrued salaries, wages and other current liabilities	24,020		29,057
Long-term debt, less current maturities (b)	3,786,480		—
Lease financing obligations, less current maturities	4,164		—
Other noncurrent liabilities	20,947		—
Current liabilities held for sale	$	3,837,519	$	32,683
Long-term debt, less current maturities (b)	$	—	$	4,027,400
Lease financing obligations, less current maturities	—		6,866
Other noncurrent liabilities	—		23,126
Noncurrent liabilities held for sale	$	—	$	4,057,392

	September 1, 2018		March 3, 2018
Inventories	$	113,523	$	264,286
Property and equipment	68,466		158,433
Goodwill(a)	—		4,629
Intangible assets	—		10,789
Current assets held for sale	$	181,989	$	438,137
Current maturities of long-term lease financing obligations	$	—	$	270
Accrued salaries, wages and other current liabilities	—		6,146
Long-term debt, less current maturities(b)	—		549,549
Lease financing obligations, less current maturities	—		838
Other noncurrent liabilities	—		3,402
Current liabilities held for sale	$	—	$	560,205

	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016
Revenues	$	2,386,710		$	2,452,996		$	7,130,653		$	7,376,859
Costs and expenses:
Cost of revenues(a)	1,752,664			1,802,987			5,274,187			5,386,605
Selling, general and administrative expenses(a)	572,809			605,216			1,765,621			1,821,506
Lease termination and impairment charges	11			66			74			76
Interest expense (b)	59,456			56,006			178,797			170,136
Gain on stores sold to Walgreens Boots Alliance	(157,010		)	—			(157,010		)	—
(Gain) loss on sale of assets, net	(589		)	726			23			2,119
	2,227,341			2,465,001			7,061,692			7,380,442
Income (loss) from discontinued operations before income taxes	159,369			(12,005		)	68,961			(3,583		)
Income tax expense (benefit)	60,155			(3,405		)	26,705			356
Net income (loss) from discontinued operations, net of tax	$	99,213		$	(8,600	)	$	42,257		$	(3,939	)

	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	September 1, 2018			September 2, 2017			September 1, 2018			September 2, 2017
Revenues	$	4,716		$	2,366,086		$	28,116		$	4,743,943
Costs and expenses:
Cost of revenues(a)	182			1,740,758			17,263			3,521,523
Selling, general and administrative expenses(a)	2,570			592,172			16,445			1,192,812
Lease termination and impairment charges	—			15			—			63
Loss on debt retirements, net	18,075			—			22,645			—
Interest expense (b)	—			60,404			4,615			119,341
Loss (gain) on stores sold to Walgreens Boots Alliance	15			—			(360,542		)	—
Loss on sale of assets, net	11			768			11			612
	20,853			2,394,117			(299,563		)	4,834,351
(Loss) income from discontinued operations before income taxes	(16,137		)	(28,031		)	327,679			(90,408		)
Income tax (benefit) expense	(9,345		)	(10,387		)	78,328			(33,452		)
Net (loss) income from discontinued operations, net of tax	$	(6,792	)	$	(17,644	)	$	249,351		$	(56,956	)

	Thirteen Week Period Ended				Twenty-Six Week Period Ended
	September 1, 2018		September 2, 2017		September 1, 2018		September 2, 2017
Impairment charges	$	33,562	$	—	$	33,845	$	659
Lease termination charges	6,047		3,113		15,623		6,492
	$	39,609	$	3,113	$	49,468	$	7,151

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Values as of Impairment Date		Total Charges September 1, 2018
Long-lived assets held and used	$	—	$	—	$	6,643	$	6,643	$	(33,562	)
Long-lived assets held for sale	—		1,292		—		1,292		(283		)
Total	$	—	$	1,292	$	6,643	$	7,935	$	(33,845	)

	Level 1		Level 2		Level 3		Total as of December 2, 2017
Long-lived assets held for use	$	—	$	—	$	174	$	174
Long-lived assets held for sale	$	—	$	104	$	—	$	104
Total	$	—	$	104	$	174	$	278

	Retail Pharmacy		Pharmacy Services			Total
Balance, March 3, 2018	$	43,492	$	1,377,628		$	1,421,120
Goodwill impairment	—		(312,985		)	(312,985		)
Balance, September 1, 2018	$	43,492	$	1,064,643		$	1,108,135

	December 2, 2017								March 4, 2017								September 1, 2018								March 3, 2018
	Gross Carrying Amount		Accumulated Amortization			Net		Remaining Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net		Remaining Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net		Remaining Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net		Remaining Weighted Average Amortization Period
Favorable leases and other (a)	$	384,937	$	(318,634	)	$	66,303	7 years	$	386,636	$	(308,766	)	$	77,870	7 years	$	375,817	$	(317,972	)	$	57,845	7 years	$	379,355	$	(316,798	)	$	62,557	7 years
Prescription files	898,351		(795,003		)	103,348		3 years	894,330		(764,840		)	129,490		3 years	908,563		(817,427		)	91,136		3 years	900,111		(801,706		)	98,405		3 years
Customer relationships(a)	465,000		(157,639		)	307,361		15 years	465,000		(110,653		)	354,347		16 years	388,000		(172,010		)	215,990		13 years	465,000		(172,635		)	292,365		15 years
CMS license	57,500		(5,597		)	51,903		23 years	57,500		(3,872		)	53,628		24 years	57,500		(7,321		)	50,179		22 years	57,500		(6,172		)	51,328		23 years
Claims adjudication and other developed software	58,987		(20,509		)	38,478		5 years	58,995		(14,188		)	44,807		6 years	58,985		(26,816		)	32,169		4 years	58,985		(22,617		)	36,368		5 years
Trademarks	20,100		(4,891		)	15,209		8 years	20,100		(3,383		)	16,717		9 years	20,100		(6,399		)	13,701		7 years	20,100		(5,394		)	14,706		8 years
Backlog	11,500		(9,328		)	2,172		1 year	11,500		(6,453		)	5,047		2 years	11,500		(11,500		)	—		0 years	11,500		(10,286		)	1,214		1 years
Total finite	$	1,896,375	$	(1,311,601	)	$	584,774		$	1,894,061	$	(1,212,155	)	$	681,906		$	1,820,465	$	(1,359,445	)	$	461,020		$	1,892,551	$	(1,335,608	)	$	556,943

Trademarks	33,500		—			33,500		Indefinite	33,500		—			33,500		Indefinite	19,500		—			19,500		Indefinite	33,500		—			33,500		Indefinite
Total	$	1,929,875	$	(1,311,601	)	$	618,274		$	1,927,561	$	(1,212,155	)	$	715,406		$	1,839,965	$	(1,359,445	)	$	480,520		$	1,926,051	$	(1,335,608	)	$	590,443

	December 2, 2017			March 4, 2017
Secured Debt:
Senior secured revolving credit facility due January 2020 ($1,925,000 and $2,430,000 face value less unamortized debt issuance costs of $18,308 and $24,918)	$	1,906,692		$	2,405,082
Tranche 1 Term Loan (second lien) due August 2020 ($470,000 face value less unamortized debt issuance costs of $3,249 and $4,167)	466,751			465,833
Tranche 2 Term Loan (second lien) due June 2021 ($500,000 face value less unamortized debt issuance costs of $2,008 and $2,431)	497,992			497,569
Other secured	90			90
	2,871,525			3,368,574
Guaranteed Unsecured Debt:
9.25% senior notes due March 2020 ($902,000 face value plus unamortized premium of $1,568 and $2,071 and less unamortized debt issuance costs of $5,575 and $7,527)	897,993			896,544
6.75% senior notes due June 2021 ($810,000 face value less unamortized debt issuance costs of $5,247 and $6,360)	804,753			803,640
6.125% senior notes due April 2023 ($1,800,000 face value less unamortized debt issuance costs of $22,777 and $25,984)	1,777,223			1,774,016
	3,479,969			3,474,200
Unguaranteed Unsecured Debt:
7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,501 and $1,625)	293,499			293,375
6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $723 and $771)	127,277			127,229
	420,776			420,604
Lease financing obligations	57,990			65,315
Total debt	6,830,260			7,328,693
Current maturities of long-term debt and lease financing obligations	(22,262		)	(21,335		)
Long-term debt and lease financing obligations, less current maturities	$	6,807,998		$	7,307,358

	September 1, 2018			March 3, 2018
Secured Debt:
Senior secured revolving credit facility due January 2020 ($1,335,000 and $0 face value less unamortized debt issuance costs of $8,633 and $13,076)	$	1,326,367		$	(13,076	)
Other secured	90			90
	1,326,457			(12,986		)
Guaranteed Unsecured Debt:
9.25% senior notes due March 2020 ($0 and $902,000 face value plus unamortized premium of $0 and $1,400 and less unamortized debt issuance costs of $0 and $4,924)	—			898,476
6.75% senior notes due June 2021 ($0 and $810,000 face value less unamortized debt issuance costs of $0 and $4,877)	—			805,123
6.125% senior notes due April 2023 ($1,753,490 and $1,800,000 face value less unamortized debt issuance costs of $19,064 and $21,708)	1,734,426			1,778,292
	1,734,426			3,481,891
Unguaranteed Unsecured Debt:
7.7% notes due February 2027 ($295,000 face value less unamortized debt issuance costs of $1,377 and $1,460)	293,623			293,540
6.875% fixed-rate senior notes due December 2028 ($128,000 face value less unamortized debt issuance costs of $675 and $707)	127,325			127,293
	420,948			420,833
Lease financing obligations	45,115			52,554
Total debt	3,526,946			3,942,292
Current maturities of long-term debt and lease financing obligations	(18,668		)	(21,031		)
Long-term debt and lease financing obligations, less current maturities	$	3,508,278		$	3,921,261

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

	December 2, 2017			November 26, 2016
	Shares	Weighted Average Fair Value		Shares	Weighted Average Fair Value
Stock options granted	1,000	$	1.08	—	$	N/A
Restricted stock awards granted	13,856	$	2.82	3,613	$	7.73
Total awards	14,856			3,613

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

	December 2, 2017
	Unvested stock options		Unvested restricted stock		Unvested performance shares
Unrecognized pre-tax costs	$	7,057	$	38,971	$	12,253
Weighted average amortization period	1.62 years		2.1 years		2.3 years

	Defined Benefit Pension Plan						Defined Benefit Pension Plan						Defined Benefit Pension Plan						Defined Benefit Pension Plan
	Thirteen Week Period Ended						Thirty-Nine Week Period Ended						Thirteen Week Period Ended						Twenty-Six Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016			September 1, 2018			September 2, 2017			September 1, 2018			September 2, 2017
Service cost	$	346		$	292		$	1,038		$	876		$	312		$	346		$	624		$	692
Interest cost	1,603			1,621			4,809			4,863			1,578			1,603			3,156			3,206
Expected return on plan assets	(1,147		)	(1,142		)	(3,441		)	(3,426		)	(1,435		)	(1,147		)	(2,869		)	(2,294		)
Amortization of unrecognized prior service cost	—			—			—			—			—			—			—			—
Amortization of unrecognized net loss	856			1,132			2,569			3,396			507			857			1,015			1,713
Net periodic pension expense	$	1,658		$	1,903		$	4,975		$	5,709		$	962		$	1,659		$	1,926		$	3,317

	Retail Pharmacy		Pharmacy Services		Eliminations (1)			Consolidated
September 1, 2018:
Total Assets	$	5,503,071	$	2,675,295	$	(12,698	)	$	8,165,668
Goodwill	43,492		1,064,643		—			1,108,135
Additions to property and equipment and intangible assets	105,369		7,715		—			113,084
March 3, 2018:
Total Assets	$	6,089,343	$	2,954,953	$	(54,969	)	$	8,989,327
Goodwill	43,492		1,377,628		—			1,421,120
Additions to property and equipment and intangible assets	199,437		15,327		—			214,764

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

	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	December 2, 2017			November 26, 2016			December 2, 2017			November 26, 2016
	(dollars in thousands)
Net (loss) income — continuing operations	$	(18,182	)	$	23,610		$	134,141		$	29,134
Interest expense	50,308			50,304			152,165			146,674
Income tax (benefit) expense	(16,061		)	(4,682		)	89,268			(3,824		)
Depreciation and amortization expense	95,764			101,953			292,448			304,460
LIFO charge	6,784			8,373			20,393			25,266
Lease termination and impairment charges	3,939			7,199			11,090			20,203
Walgreens Boots Alliance merger termination fee	—			—			(325,000		)	—
Other	6,697			4,577			27,985			50,567
Adjusted EBITDA	$	129,249		$	191,334		$	402,490		$	572,480

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

	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	September 1, 2018			September 2, 2017(a)			September 1, 2018			September 2, 2017(a)
	(dollars in thousands)
Net (loss) income	$	(352,348	)	$	188,360		$	(394,075	)	$	152,323
Interest expense	56,233			50,857			119,025			101,857
Income tax (benefit) expense	(106,559		)	117,450			(116,056		)	105,329
Depreciation and amortization expense	89,743			95,655			184,272			196,684
LIFO charge	3,358			3,436			13,324			13,609
Lease termination and impairment charges	39,609			3,113			49,468			7,151
Goodwill and intangible asset impairment charges	375,190			—			375,190			—
Loss on debt retirements, net	—			—			554			—
Merger and Acquisition-related costs	19,031			9,632			26,219			10,848
Stock based compensation expense	5,215			6,324			10,246			15,362
Inventory write-downs related to store closings	1,300			1,348			5,133			3,766
Litigation settlement	18,000			—			18,000			—
Gain on sale of assets, net	(4,965		)	(14,951		)	(10,824		)	(20,828		)
Walgreens Boots Alliance merger termination fee	—			(325,000		)	—			(325,000		)
Other	4,774			678			6,097			1,851
Adjusted EBITDA	$	148,581		$	136,902		$	286,573		$	262,952

	Thirty-Nine Weeks Ended December 2, 2017		Twenty-Six Weeks Ended
			September 1, 2018		September 2, 2017
Cash paid for interest (net of capitalized amounts of $263)	$	285,022
Cash payments of income taxes, net of refunds	$	8,353
Cash paid for interest (net of capitalized amounts of $3 and $184, respectively)(a)			$	165,995	$	208,909
Cash payments for income taxes, net(a)			$	19,314	$	3,119
Equipment financed under capital leases	$	10,295	$	2,275	$	8,615
Equipment received for noncash consideration	$	2,044	$	—	$	1,295
Reduction in lease financing obligation	$	4,740	$	—	$	4,740
Gross borrowings from revolver(a)	$	2,203,000	$	2,237,000	$	1,471,000
Gross payments to revolver	$	2,467,080
Gross repayments to revolver(a)			$	902,000	$	1,661,000

	Thirty-Nine Weeks Ended November 26, 2016

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

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

	Rite Aid Corporation
	Condensed Consolidating Balance Sheet
	September 1, 2018 (unaudited)
	Rite Aid Corporation (Parent Company Only)		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	103,349	$	29,119	$	—		$	132,468
Accounts receivable, net	—		1,565,035		474,570		—			2,039,605
Intercompany receivable			310,291		—		(310,291		)(a)	—
Inventories, net of LIFO reserve of $0, $594,413, $0, $0, and $594,413	—		1,848,287		—		—			1,848,287
Prepaid expenses and other current assets	—		167,078		2,235		—			169,313
Current assets held for sale	—		181,989		—		—			181,989
Total current assets	—		4,176,029		505,924		(310,291		)	4,371,662
Property, plant and equipment, net	—		1,350,735		—		—			1,350,735
Goodwill	—		1,108,135		—		—			1,108,135
Other intangibles, net	—		430,342		50,178		—			480,520
Deferred tax assets	—		635,127		—		—			635,127
Investment in subsidiaries	8,661,543		53,443		—		(8,714,986		)(b)	—
Intercompany receivable	—		3,709,374		—		(3,709,374		)(a)	—
Other assets	—		212,272		7,217		—			219,489
Total assets	$	8,661,543	$	11,675,457	$	563,319	$	(12,734,651	)	$	8,165,668
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	90	$	18,578	$	—	$	—		$	18,668
Accounts payable	—		1,726,014		7,975		—			1,733,989
Intercompany payable	—		—		310,291		(310,291		)(a)	—
Accrued salaries, wages and other current liabilities	14,388		751,080		173,472		—			938,940
Total current liabilities	14,478		2,495,672		491,738		(310,291		)	2,691,597
Long-term debt, less current maturities	3,481,741		—		—		—			3,481,741
Lease financing obligations, less current maturities	—		26,537		—		—			26,537
Intercompany payable	3,709,374		—		—		(3,709,374		)(a)	—
Other noncurrent liabilities	—		491,705		18,138		—			509,843

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