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RITE AID CORP - Quarter Report: 2011 August (Form 10-Q)


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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


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

For the quarterly period ended August 27, 2011

OR

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

For the transition period from            to          

Commission File Number: 1-5742

RITE AID CORPORATION
(Exact name of registrant as specified in its charter)

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

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

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

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report):
 Not Applicable

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

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
 (Do not check if a
smaller reporting company)		   Smaller reporting company o

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

        The registrant had 898,743,304 shares of its $1.00 par value common stock outstanding as of September 22, 2011.

Table of Contents

RITE AID CORPORATION

TABLE OF CONTENTS

 

Cautionary Statement Regarding Forward-Looking Statements

   2

 

PART I
FINANCIAL INFORMATION

    

ITEM 1.

  

Financial Statements (unaudited):

  

 

Condensed Consolidated Balance Sheets as of August 27, 2011 and February 26, 2011

  
3

 

Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended August 27, 2011 and August 28, 2010

  
4

 

Condensed Consolidated Statements of Operations for the Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

  
5

 

Condensed Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

  
6

 

Notes to Condensed Consolidated Financial Statements

  
7

ITEM 2.

  

Management's Discussion and Analysis of Financial Condition and Results of Operations

  
24

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  
33

ITEM 4.

  

Controls and Procedures

  
33

 

PART II
OTHER INFORMATION

    

ITEM 1.

  

Legal Proceedings

  
34

ITEM 1A.

  

Risk Factors

  
35

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  
35

ITEM 3.

  

Defaults Upon Senior Securities

  
35

ITEM 4.

  

Removed and Reserved

  
35

ITEM 5.

  

Other Information

  
35

ITEM 6.

  

Exhibits

  
36

1

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        This report, as well as our other public filings or public statements, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are 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 senior secured credit facility and other debt agreements;

    •
    general economic conditions (including the impact of continued high unemployment and changing consumer behavior), inflation and interest rate movements;

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

    •
    our ability to realize same store sales growth;

    •
    our ability to hire and retain qualified personnel;

    •
    the efforts of private and public third party payors to reduce prescription drug reimbursement and encourage mail order;

    •
    competitive pricing pressures, including aggressive promotional activity from our competitors;

    •
    decisions to close additional stores and distribution centers, which could result in further charges to our operating statement;

    •
    our ability to manage expenses;

    •
    our ability to realize the benefits from actions to further reduce costs and investment in working capital;

    •
    continued consolidation of the drugstore and the pharmacy benefit management industries;

    •
    changes in state or federal legislation or regulations, and the impact of healthcare reform;

    •
    the outcome of lawsuits and governmental investigations;

    •
    our ability to maintain the listing of our common stock on the New York Stock Exchange (the "NYSE"), and the resulting impact on our indebtedness, results of operations and financial condition; and

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

        We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein and included in our Annual Report on Form 10-K for the fiscal year ended February 26, 2011 (the "Fiscal 2011 10-K"), which we filed with the SEC on April 26, 2011 and our Quarterly Report on Form 10-Q for the thirteen weeks ended May 28, 2011 (the "First Quarter 2012 10-Q"), which we filed on July 6, 2011. These documents are available on the SEC's website at www.sec.gov.

2

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PART I. FINANCIAL INFORMATION

ITEM 1.    Financial Statements

        


RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

 
   August 27,
2011 		  February 26,
2011 		 

ASSETS

              

Current assets:

              
 

Cash and cash equivalents

   $ 78,363   $ 91,116  
 

Accounts receivable, net

     949,131     966,457  
 

Inventories, net of LIFO reserve of $915,014 and $875,012

     3,290,170     3,158,145  
 

Prepaid expenses and other current assets

     114,219     195,647  
           
   

Total current assets

     4,431,883     4,411,365  

Property, plant and equipment, net

     1,960,157     2,039,383  

Other intangibles, net

     584,914     646,177  

Other assets

     439,452     458,925  
           
   

Total assets

   $ 7,416,406   $ 7,555,850  
           

LIABILITIES AND STOCKHOLDERS' DEFICIT

              

Current liabilities:

              
 

Current maturities of long-term debt and lease financing obligations

   $ 22,987   $ 63,045  
 

Accounts payable

     1,335,408     1,307,872  
 

Accrued salaries, wages and other current liabilities

     1,066,158     1,049,406  
           
   

Total current liabilities

     2,424,553     2,420,323  

Long-term debt, less current maturities

     6,052,353     6,034,525  

Lease financing obligations, less current maturities

     116,489     122,295  

Other noncurrent liabilities

     1,181,405     1,190,074  
           
   

Total liabilities

     9,774,800     9,767,217  

Commitments and contingencies

     —     —  

Stockholders' deficit:

              
 

Preferred stock—series G, par value $1 per share, liquidation value $100 per share; 2,000 shares authorized; shares issued .006 and .006

     1     1  
 

Preferred stock—series H, par value $1 per share, liquidation value $100 per share; 2,000 shares authorized; shares issued 1,665 and 1,616

     166,536     161,650  
 

Common stock, par value $1 per share; 1,500,000 authorized; shares issued and outstanding 898,740 and 890,297

     898,740     890,297  

Additional paid-in capital

     4,275,429     4,281,623  

Accumulated deficit

     (7,670,139 )   (7,514,796 )

Accumulated other comprehensive loss

     (28,961 )   (30,142 )
           
 

Total stockholders' deficit

     (2,358,394 )   (2,211,367 )
           
 

Total liabilities and stockholders' deficit

   $ 7,416,406   $ 7,555,850  
           

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents


RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

 
   Thirteen Week Period Ended  
 
   August 27,
2011 		  August 28,
2010 		 

Revenues

   $ 6,271,091   $ 6,161,752  

Costs and expenses:

              
 

Cost of goods sold

     4,622,130     4,523,092  
 

Selling, general and administrative expenses

     1,603,752     1,626,704  
 

Lease termination and impairment charges

     15,118     26,360  
 

Interest expense

     130,829     139,716  
 

(Gain) loss on debt modifications and retirements, net

     (4,924 )   44,003  
 

Gain on sale of assets, net

     (848 )   (3,973 )
           

    6,366,057     6,355,902  
           

Loss before income taxes

     (94,966 )   (194,150 )

Income tax (benefit) expense

     (2,712 )   2,826  
           

Net loss

   $ (92,254 ) $ (196,976 )
           

Computation of loss attributable to common stockholders:

              
 

Net loss

   $ (92,254 ) $ (196,976 )
 

Accretion of redeemable preferred stock

     (26 )   (26 )
 

Cumulative preferred stock dividends

     (2,461 )   (2,318 )
           
 

Loss attributable to common stockholders—basic and diluted

   $ (94,741 ) $ (199,320 )
           
 

Basic and diluted loss per share

   $ (0.11 ) $ (0.23 )
           

See accompanying notes to condensed consolidated financial statements.

4

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(In thousands, except per share amounts)

(unaudited)

 
   Twenty-Six Week Period Ended  
 
   August 27,
2011 		  August 28,
2010 		 

Revenues

   $ 12,661,884   $ 12,556,088  

Costs and expenses:

              
 

Cost of goods sold

     9,322,004     9,205,724  
 

Selling, general and administrative expenses

     3,189,988     3,249,638  
 

Lease termination and impairment charges

     32,208     39,817  
 

Interest expense

     261,589     281,335  
 

Loss on debt modifications and retirements, net

     17,510     44,003  
 

Gain on sale of assets, net

     (5,640 )   (3,736 )
           

    12,817,659     12,816,781  
           

Loss before income taxes

     (155,775 )   (260,693 )

Income tax (benefit) expense

     (439 )   9,967  
           

Net loss

   $ (155,336 ) $ (270,660 )
           

Computation of loss attributable to common stockholders:

              
 

Net loss

   $ (155,336 ) $ (270,660 )
 

Accretion of redeemable preferred stock

     (51 )   (51 )
 

Cumulative preferred stock dividends

     (4,886 )   (4,603 )
           
 

Loss attributable to common stockholders—basic and diluted

   $ (160,273 ) $ (275,314 )
           
 

Basic and diluted loss per share

   $ (0.18 ) $ (0.31 )
           

See accompanying notes to condensed consolidated financial statements.

5

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RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 
   Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		 

Operating activities:

              
 

Net loss

   $ (155,336 ) $ (270,660 )
 

Adjustments to reconcile to net cash provided by operating activities:

              
   

Depreciation and amortization

     225,802     254,013  
   

Lease termination and impairment charges

     32,208     39,817  
   

LIFO charges

     40,002     41,056  
   

Gain on sale of assets, net

     (5,640 )   (3,736 )
   

Stock-based compensation expense

     7,523     9,735  
   

Loss on debt modifications and retirements, net

     17,510     44,003  
   

Changes in operating assets and liabilities:

              
     

Accounts receivable

     13,554     8,663  
     

Inventories

     (172,290 )   (60,166 )
     

Accounts payable

     151,125     311,378  
     

Other assets and liabilities, net

     99,601     139,706  
           
       

Net cash provided by operating activities

     254,059     513,809  
           

Investing activities:

              
 

Payments for property, plant and equipment

     (90,286 )   (72,519 )
 

Intangible assets acquired

     (16,447 )   (10,222 )
 

Proceeds from dispositions of assets and investments

     9,363     8,921  
           
       

Net cash used in investing activities

     (97,370 )   (73,820 )
           

Financing activities:

              
 

Proceeds from issuance of long-term debt

     341,285     650,000  
 

Net proceeds from (repayments to) revolver

     45,000     (80,000 )
 

Principal payments on long-term debt

     (435,161 )   (769,089 )
 

Change in zero balance cash accounts

     (118,281 )   (158,482 )
 

Net proceeds from issuance of common stock

     504     94  
 

Financing fees paid for early debt retirement

     —     (19,666 )
 

Deferred financing costs paid

     (2,789 )   (34,028 )
           
       

Net cash used in financing activities

     (169,442 )   (411,171 )
           

(Decrease) increase in cash and cash equivalents

     (12,753 )   28,818  

Cash and cash equivalents, beginning of period

     91,116     103,594  
           

Cash and cash equivalents, end of period

   $ 78,363   $ 132,412  
           

Supplementary cash flow data:

              
 

Cash paid for interest (net of capitalized amounts of $212 and $303, respectively)

   $ 245,635   $ 218,106  
           
 

Cash payments of income taxes, net of refunds

   $ 2,108   $ 7,295  
           
 

Equipment financed under capital leases

   $ 2,381   $ 2,064  
           
 

Equipment received for noncash consideration

   $ 1,734   $ 2,206  
           
 

Reduction in lease financing obligation

   $ —   $ —  
           
 

Preferred stock dividends paid in additional shares

   $ 4,886   $ 4,603  
           
 

Gross borrowings from revolver

   $ 693,000   $ 61,000  
           
 

Gross repayments to revolver

   $ 648,000   $ 141,000  
           

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents


RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

(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 twenty-six week periods ended August 27, 2011 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 Company's Fiscal 2011 10-K.

2. Loss Per Share

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

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Numerator for loss per share:

                          
 

Net loss

   $ (92,254 ) $ (196,976 ) $ (155,336 ) $ (270,660 )
 

Accretion of redeemable preferred stock

     (26 )   (26 )   (51 )   (51 )
 

Cumulative preferred stock dividends

     (2,461 )   (2,318 )   (4,886 )   (4,603 )
                   
 

Loss attributable to common stockholders, basic and diluted

   $ (94,741 ) $ (199,320 ) $ (160,273 ) $ (275,314 )
                   

Denominator:

                          
 

Basic and diluted weighted average shares

     885,621     882,758     884,768     882,245  
 

Basic and diluted loss per share

   $ (0.11 ) $ (0.23 ) $ (0.18 ) $ (0.31 )
                   

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

2. Loss Per Share (Continued)

        Due to their antidilutive effect, the following potential common shares have been excluded from the computation of diluted loss per share as of August 27, 2011 and August 28, 2010:

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Stock options

     77,713     88,297     77,713     88,297  

Convertible preferred stock

     30,279     28,529     30,279     28,529  

Convertible debt

     24,800     24,800     24,800     24,800  
                   

    132,792     141,626     132,792     141,626  
                   

        Also excluded from the computation of diluted loss per share as of August 27, 2011 and August 28, 2010 are restricted shares and restricted stock units of 12,407 and 8,191, respectively, which are included in shares outstanding.

3. Lease Termination and Impairment Charges

        Lease termination and impairment charges consist of amounts and number of locations as follows:

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Impairment charges

   $ 657   $ 1,312   $ 1,391   $ 2,446  

Facility and equipment lease exit charges

     14,461     25,048     30,817     37,371  
                   

  $ 15,118   $ 26,360   $ 32,208   $ 39,817  
                   

Impairment charges

                          

Number of Stores

     13     7     27     23  

Number of Distribution Centers

     —     —     —     —  
                   

    13     7     27     23  
                   

Lease exit charges

                          

Number of Stores

     8     12     11     20  

Number of Distribution Centers

     —     —     —     —  
                   

    8     12     11     20  
                   

8

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

3. Lease Termination and Impairment Charges (Continued)

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.

Facility and Equipment Lease Exit Charges

        Charges to close a store, which principally consist of lease termination costs, are recorded at the time the store is closed and all inventory is liquidated, pursuant to the guidance set forth in ASC 420, "Exit or Disposal Cost Obligations." The Company calculates the liability for closed stores on a store-by-store basis. The calculation includes the discounted effect of future minimum lease payments and related ancillary costs, from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting or favorable lease terminations. The Company evaluates these assumptions each quarter and adjusts the liability accordingly.

        As part of our ongoing business activities, the Company assesses stores and distribution centers for potential closure. Decisions to close stores or distribution centers in future periods would result in charges for lease exit costs and liquidation of inventory, 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 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Balance—beginning of period

   $ 396,443   $ 398,251   $ 405,350   $ 412,654  
 

Provision for present value of noncancellable lease payments of closed stores

     2,306     11,139     3,170     16,631  
 

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

     5,859     7,509     15,222     8,366  
 

Interest accretion

     6,627     6,480     13,571     13,335  
 

Cash payments, net of sublease income

     (21,074 )   (28,281 )   (47,152 )   (55,888 )
                   

Balance—end of period

   $ 390,161   $ 395,098   $ 390,161   $ 395,098  
                   

        The Company's revenues and loss before income taxes for the thirteen and twenty-six week periods ended August 27, 2011 and August 28, 2010 include results from stores that have been closed or are

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

3. Lease Termination and Impairment Charges (Continued)


approved for closure as of August 27, 2011. The revenue, operating expenses, and loss before income taxes of these stores for the periods are presented as follows:

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Revenues

   $ 21,213   $ 60,921   $ 49,294   $ 139,305  

Operating expenses

     23,274     68,668     54,531     156,960  

(Gain) loss from sale of assets

     (530 )   (3,432 )   (5,791 )   (4,508 )

Other expenses

     216     410     (275 )   1,728  

Loss before income taxes

     (1,747 )   (4,725 )   829     (14,875 )
 

Included in these stores' loss before income taxes are:

                          

Depreciation and amortization

    
193		    
768		    
465		    
1,736		  

Inventory liquidation charges

     90     588     486     2,189  

        The above results are not necessarily indicative of the impact that these closures will have on revenues and operating results of the Company in the future, as the Company often transfers the business of a closed store to another Company store, thereby retaining a portion of these revenues and operating expenses.

        The Company prioritizes inputs used in measuring the fair value of its nonfinancial assets and liabilities into a hierarchy of three levels: Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3—unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

        Long-lived 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 and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

3. Lease Termination and Impairment Charges (Continued)

        The table below sets forth by level within the fair value hierarchy the long-lived assets as of the impairment measurement date for which an impairment assessment was performed and total losses for the thirteen and twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively.

 
    
    
    
    
   Total Losses  
 
   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 		  Thirteen Week
Period Ended
August 27,
2011 		  Twenty-Six
Week
Period Ended
August 27,
2011 		 

Long-lived assets held and used

   $ —   $ —   $ —   $ —   $ 208   $ 942  

Long-lived assets held for sale

     —   $ 1,124     —   $ 1,124   $ 449   $ 449  
                           

Total

   $ —   $ 1,124   $ —   $ 1,124   $ 657   $ 1,391  
                           

 

 
    
    
    
    
   Total Losses  
 
   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 		  Thirteen Week
Period Ended
August 28,
2010 		  Twenty-Six
Week
Period Ended
August 28,
2010 		 

Long-lived assets held and used

   $ —   $ —   $ 291   $ 291   $ 1,312   $ 2,446  

Long-lived assets held for sale

     —     —     —     —     —     —  
                           

Total

   $ —   $ —   $ 291   $ 291   $ 1,312   $ 2,446  
                           

4. Income Taxes

        The Company recorded an income tax benefit of $2,712 and an income tax expense of $2,826 for the thirteen week periods and an income tax benefit of $439 and an income tax expense of $9,967 for the twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively. The income tax benefit for the thirteen and twenty-six week periods ended August 27, 2011 is primarily attributable to a net benefit of $5,687 for discrete items related to the recognition of previously unrecognized tax benefits offset by an accrual of state and local taxes and adjustments to unrecognized tax benefits. The income tax expense for the thirteen and twenty-six week periods ended August 28, 2010 is primarily due to the need for an accrual of additional state taxes resulting from the receipt of a final audit determination and adjustments to unrecognized tax benefits.

        The Company is indemnified by Jean Coutu Group for certain tax liabilities incurred for all years ended up to and including the acquisition date of June 4, 2007, related to the Brooks Eckerd acquisition. Although the Company is indemnified by Jean Coutu Group, the Company remains the primary obligor to the tax authorities with respect to any tax liability arising for the years prior to the

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

4. Income Taxes (Continued)


acquisition. Accordingly, as of August 27, 2011 and February 26, 2011, the Company had a corresponding recoverable indemnification asset of $162,542 and $158,209 from Jean Coutu Group, respectively, included in the 'Other Assets' line of the Consolidated Balance Sheets, to reflect the indemnification for such liabilities.

        The Company files U.S. federal income tax returns as well as income tax returns in those states where it does business. The consolidated federal income tax returns have been subject to examination by the Internal Revenue Service (IRS) through fiscal 2008. However, any net operating losses that were generated in these prior closed years may be subject to examination by the IRS upon utilization. The IRS has completed the examination of the consolidated U.S. income tax returns for Brooks Eckerd for the periods leading up to the acquisition which include fiscal years 2004 through 2007. A revenue agent report (RAR) has been received for each of the three audit cycles, with the last RAR received in the third quarter of fiscal 2011. The company is appealing these audit results. Management believes that the Company has adequately provided for any potential adverse results. Furthermore, pursuant to the tax indemnification referenced above, Jean Coutu Group is required to reimburse the Company for any assessment that may arise. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. However, as a result of filing amended returns, the Company has statutes open in some states from fiscal 2004.

        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.

        Over the next 12 months, the Company believes that it is reasonably possible that the amount of unrecognized tax positions including interest and penalties could decrease tax liabilities by approximately $97,739, which would impact the effective tax rate if our tax positions are sustained upon audit, the controlling statute of limitations expires or we agree to a disallowance. The primary driver of the decrease is contingent upon the timing of the conclusion of the pre-acquisition period's audit of the consolidated U.S. income tax returns for Brooks Eckerd and will impact the effective rate by decreasing tax expense by approximately $60,698. The corresponding indemnification asset will reverse concurrently.

        The valuation allowances as of August 27, 2011 and February 26, 2011 apply to the net deferred tax assets of the Company. The Company continues to maintain a full valuation allowance of $2,254,593 and $2,199,302 against net deferred tax assets at August 27, 2011 and February 26, 2011, respectively.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

5. Intangible Assets

        The Company's intangible assets are finite-lived and amortized over their useful lives. Following is a summary of the Company's amortizable intangible assets as August 27, 2011 and February 26, 2011.

 
   August 27, 2011   February 26, 2011
 
   Gross
Carrying
Amount 		  Accumulated
Amortization 		  Remaining
Weighted
Average
Amortization
Period 		  Gross
Carrying
Amount 		  Accumulated
Amortization 		  Remaining
Weighted
Average
Amortization
Period

Favorable leases and other

   $ 623,173   $ (358,571 ) 10 years   $ 620,786   $ (335,692 ) 10 years

Prescription files

     1,228,625     (908,313 ) 5 years     1,217,212     (856,129 ) 6 years
                         

Total

   $ 1,851,798   $ (1,266,884 )     $ 1,837,998   $ (1,191,821 )  
                         

        Also included in other non-current liabilities as of August 27, 2011 and February 26, 2011 are unfavorable lease intangibles with a net carrying amount of $87,728 and $93,952 respectively. These intangible liabilities are amortized over their remaining lease terms.

        Amortization expense for these intangible assets and liabilities was $34,121 and $75,234 for the thirteen and twenty-six week periods ended August 27, 2011, respectively. Amortization expense for these intangible assets and liabilities was $43,561 and $88,001 for the thirteen and twenty-six week periods ended August 28, 2010, respectively. The anticipated annual amortization expense for these intangible assets and liabilities is 2012—$137,483; 2013—$112,876; 2014—$87,410; 2015—$70,242 and 2016—$58,908.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

6. Indebtedness and Credit Agreements

        Following is a summary of indebtedness and lease financing obligations at August 27, 2011 and February 26, 2011:

 
   August 27,
2011 		  February 26,
2011 		 

Secured Debt:

              
 

Senior secured revolving credit facility due August 2015 (or April 2014, see Credit Facility below)

   $ 73,000   $ 28,000  
 

Senior secured credit facility term loan due June 2014

     1,044,433     1,074,613  
 

Senior secured credit facility term loan due June 2014 ($342,125 face value less unamortized discount of $19,718)

     —     322,407  
 

Senior secured credit facility term loan due March 2018 (or December 2014 or September 2015, see Credit Facility below) ($333,367 face value less unamortized discount of $1,611)

     331,756     —  
 

9.75% senior secured notes (senior lien) due June 2016 ($410,000 face value less unamortized discount of $5,107 and $5,635)

     404,893     404,365  
 

8.00% senior secured notes (senior lien) due August 2020

     650,000     650,000  
 

10.375% senior secured notes (second lien) due July 2016 ($470,000 face value less unamortized discount of $27,187 and $29,952)

     442,813     440,048  
 

7.5% senior secured notes (second lien) due March 2017

     500,000     500,000  
 

10.25% senior secured notes (second lien) due October 2019 ($270,000 face value less unamortized discount of $1,671 and $1,774)

     268,329     268,226  
 

Other secured

     5,357     5,408  
           

    3,720,581     3,693,067  

Guaranteed Unsecured Debt:

              
 

8.625% senior notes due March 2015

     459,000     500,000  
 

9.375% senior notes due December 2015 ($405,000 and $410,000 face value less unamortized discount of $2,993 and $3,345)

     402,007     406,655  
 

9.5% senior notes due June 2017 ($810,000 face value less unamortized discount of $7,480 and $8,130)

     802,520     801,870  
           

    1,663,527     1,708,525  

Unsecured Unguaranteed Debt:

              
 

9.25% senior notes due June 2013

     6,015     6,015  
 

6.875% senior debentures due August 2013

     180,277     184,773  
 

8.5% convertible notes due May 2015

     64,188     64,188  
 

7.7% notes due February 2027

     295,000     295,000  
 

6.875% fixed-rate senior notes due December 2028

     128,000     128,000  
           

    673,480     677,976  

Lease financing obligations

     134,241     140,297  
           

Total debt

     6,191,829     6,219,865  

Current maturities of long-term debt and lease financing obligations

     (22,987 )   (63,045 )
           

Long-term debt and lease financing obligations, less current maturities

   $ 6,168,842   $ 6,156,820  
           

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

6. Indebtedness and Credit Agreements (Continued)

Credit Facility

        The Company has a senior secured credit facility that consists of a $1,175,000 revolving credit facility and two term loans. Borrowings under the revolving credit facility bear interest at a rate per annum between LIBOR plus 3.25% and LIBOR plus 3.75% if the Company chooses to make LIBOR borrowings, or between Citibank's base rate plus 2.25% and Citibank's base rate plus 2.75%, in each case based upon the amount of revolver availability, as defined in the senior secured credit facility. The Company is required to pay fees between 0.50% and 0.75% per annum on the daily unused amount of the revolver depending on the amount of revolver availability. Amounts drawn under the revolver become due and payable on August 19, 2015, provided that such maturity date shall instead be April 18, 2014 in the event that on or prior to April 18, 2014 the Company does not repay, refinance or otherwise extend the maturity date of its Tranche 2 Term Loan (as defined below) to a date that is at least 90 days after August 19, 2015 and, in the case of a repayment or refinancing, the Company must have at least $500,000 of availability under the revolver.

        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 August 27, 2011, the Company had $73,000 of borrowings outstanding under the revolver and had letters of credit outstanding thereunder of $138,916 which gave the Company additional borrowing capacity of $963,084.

        The credit facility also includes a $1,044,433 senior secured term loan (the "Tranche 2 Term Loan"). The Tranche 2 Term Loan will mature on June 4, 2014 and currently bears interest at a rate per annum equal to LIBOR plus 1.75%, if the Company elects LIBOR borrowings, or at Citibank's base rate plus 0.75%. Mandatory prepayments are required to be made from proceeds of asset dispositions and casualty events (subject to certain limitations), a portion of excess cash flows (as defined in the senior secured credit facility) and proceeds from certain issuances of equity or debt (subject to certain exceptions). If at any time there is a shortfall in the borrowing base under the senior secured credit facility, prepayment of the Tranche 2 Term Loan may also be required.

        On March 3, 2011, the Company refinanced its Tranche 3 Term Loan with a $331,756 senior secured term loan (the "Tranche 5 Term Loan"). The Tranche 5 Term Loan matures on March 3, 2018, although the maturity will instead be December 1, 2014 in the event that the Company does not repay or refinance its outstanding 8.625% senior notes due 2015 prior to that time, or September 16, 2015, in the event that the Company does not repay or refinance its outstanding 9.375% senior notes due 2015 prior to that time. The Tranche 5 Term Loan bears interest at a rate per annum equal to LIBOR plus 3.25% with a 1.25% LIBOR floor, and is subject to a 1% prepayment fee in the event it is refinanced within the first year after issuance with the proceeds of a substantially concurrent issuance of new loans or other indebtedness incurred for the primary purpose of repaying, refinancing or replacing the Tranche 5 Term Loan. The Company must make mandatory prepayments of the Tranche 5 Term Loan with the proceeds of asset dispositions and casualty events (subject to certain limitations), with a portion of excess cash flow generated by the Company (as defined in the senior secured credit facility) and with the proceeds of certain issuances of equity and debt (subject to certain exceptions). If at any

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

6. Indebtedness and Credit Agreements (Continued)


time there is a shortfall in its borrowing base under its senior secured credit facility, prepayment of the Tranche 5 Term Loan may also be required.

        The senior secured credit facility also restricts the Company and the subsidiary guarantors from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding (not including cash located in the Company's store deposit accounts, cash necessary to cover the Company's current liabilities and certain other exceptions) and from accumulating cash on hand with revolver borrowings in excess of $100,000 over three consecutive business days. The 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 the Company's senior secured credit facility or (b) the sum of revolver availability under the Company's senior secured credit facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than $100,000 for three consecutive business days (a "cash sweep period"), the funds in the Company's deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the 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 the Company's senior secured credit facility.

        The senior secured credit facility allows the Company to have outstanding, at any time, up to $1,500,000 in secured second priority debt and unsecured debt in addition to borrowings under the senior secured credit facility and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt and unsecured debt shall mature or require scheduled payments of principal prior to three months after June 4, 2014. The senior secured credit facility allows the Company to incur an unlimited amount of unsecured debt with a maturity beyond three months after June 4, 2014; however, other debentures limit the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence of said debt. The senior secured facility also allows, so long as the senior secured credit facility is not in default, for the repurchase of any debt with a maturity on or before June 4, 2014, for the voluntary repurchase of debt with a maturity after June 4, 2014, and the mandatory repurchase of the Company's 8.5% convertible notes due 2015 if the Company maintains availability on the revolving credit facility of at least $100,000.

        The senior secured credit facility contains covenants which place restrictions on the incurrence of debt beyond the restrictions described above, the payments of dividends, sale of assets, mergers and acquisitions and the granting of liens. The credit facility has a financial covenant, which is the maintenance of a fixed charge coverage ratio. The covenant requires that, if availability on the revolving credit facility is less than $150,000, the Company must maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 through November 26, 2011. This ratio increases to 1.05 to 1.00 in the last quarter of Fiscal 2012 and remains at that level for the remaining term of the facility. As of August 27, 2011, the Company was in compliance with this financial covenant.

        The senior secured credit facility provides for events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Company

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

6. Indebtedness and Credit Agreements (Continued)


fails to make any required payment on debt having a principal amount in excess of $50,000 or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repurchase of such debt. The August 2010 amendments to the senior secured credit facility exclude the mandatory repurchase of the 8.5% convertible notes due 2015 from this event of default.

        Substantially all of Rite Aid Corporation's wholly-owned subsidiaries guarantee the obligations under the senior secured credit facility. The subsidiary guarantees of the senior secured credit facility; the 9.75% senior secured notes due 2016 and the 8.00% senior secured notes due 2020 are secured by a senior lien on, among other things, accounts receivable, inventory and prescription files of the subsidiary guarantors. Rite Aid Corporation is a holding company with no direct operations and is dependent upon dividends, distributions and other payments from its subsidiaries to service payments due under the senior secured credit facility. The Company's 10.375% senior secured notes due 2016, the 7.5% senior secured notes due 2017 and the 10.25% senior secured notes due 2019 are secured on a second priority basis by the same collateral that secures the senior secured credit facility, the 9.75% senior secured notes due 2016 and the 8.00% senior secured notes due 2020. The 8.625% senior notes due 2015, the 9.375% senior notes due 2015 and the 9.5% senior notes due 2017 are guaranteed by substantially all of the Company's wholly-owned subsidiaries on an unsecured basis.

        The subsidiary guarantees related to the Company's senior secured credit facility and secured guaranteed notes 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. Also, the Company has no independent assets or operations, and subsidiaries not guaranteeing the credit facility and applicable notes are minor. Accordingly, condensed consolidating financial information for the Company and subsidiaries is not presented.

        The indentures that govern the Company's secured and guaranteed unsecured notes contain restrictions on the amount of additional secured and unsecured debt that can be incurred by the Company. As of August 27, 2011, the amount of additional secured and unsecured debt that could be incurred under these indentures was $1,069,200 (which does not include the ability to enter into certain sale and leaseback transactions.) However, the Company could not incur any additional secured debt assuming a fully drawn revolver and the outstanding letters of credit. The ability to issue additional unsecured debt under these indentures is governed by an interest coverage ratio test.

Other Indebtedness

Convertible Notes

        On March 1, 2011, the Company was notified by the NYSE that, as of March 1, 2011, it had regained compliance with the NYSE minimum share price listing requirement. The Company is now in compliance with all NYSE listing rules, and has actively been taking steps to maintain its listing and expects its efforts to maintain its NYSE listing will be successful. However, there can be no assurance that the Company will maintain compliance with the NYSE minimum share price rule or other continued listing requirements. In the event of a delisting, all holders of its $64,188 of outstanding

17

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

6. Indebtedness and Credit Agreements (Continued)


8.5% Convertible Notes due May 2015 ("Convertible Notes") would be entitled to require the Company to repurchase its Convertible Notes. The Company's senior secured credit facility permits the Company to make such a repurchase of the Convertible Notes; provided that, before and after such transaction, no default or event of default shall have occurred and be continuing under the senior secured credit facility and the Company has at least $100.0 million of availability under its revolving credit facility. The Company's ability to pay cash to holders of the Convertible Notes may be limited by its financial resources at the time of such repurchase. The Company cannot assure you that sufficient financing will be available on terms acceptable to it if necessary to make any required repurchase of the Convertible Notes.

Optional Debt Repurchases

        During August 2011, the Company repurchased $41,000 of its 8.625% senior notes due March 2015, $5,000 of its 9.375% senior notes due December 2015 and $4,496 of its 6.875% senior debentures due August 2013. These repurchases resulted in a gain for the period of $4,924.

Maturities

        The aggregate annual principal payments of long-term debt for the remainder of fiscal 2012 and thereafter are as follows: 2012—$5,179; 2013—$114; 2014—$189,326; 2015—$1,044,692; 2016—$1,004,618 and $3,859,708 thereafter.

Refinancing

        In August 2010, the Company repaid all borrowings outstanding under its revolving credit facility due September 2012 and cancelled all of its commitments thereunder and replaced such facility with a new $1,175,000 revolving credit facility (the "New Revolver") due 2015 (or such earlier date as noted below). The Company also repaid and retired all borrowings and accrued interest due under its $647,726 Tranche 4 Term Loan due June 2015. The Company financed these repayments with the net proceeds from an issuance of $650,000 of new 8.00% Senior Secured Notes due August 2020 (the "New Notes" the New Revolver and the New Notes are hereinafter collectively referred to as the "Refinancing"), together with cash on hand. The prepayment of the Tranche 4 Term Loan occurred prior to the second anniversary of the borrowing thereof and therefore a 3.0% penalty of the principal amount outstanding was paid totaling $19,432, which was included in loss on debt modifications for the thirteen week period ended August 28, 2010. The loss on debt modifications and retirements for the thirteen week period ended August 28, 2010 also included the write-off of debt issue costs of $13,142 and net unamortized original issuance discounts of $11,429. Additionally, the Company incurred fees and expenses of $34,028 to consummate the Refinancing, which are being deferred and amortized over the terms of the related debt instruments.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

7. Financial Instruments

        The carrying amounts and fair values of financial instruments at August 27, 2011 and February 26, 2011 are as follows:

 
   August 27, 2011   February 26, 2011  
 
   Carrying
Amount 		  Fair
Value 		  Carrying
Amount 		  Fair
Value 		 

Variable rate indebtedness

   $ 1,449,189   $ 1,300,647   $ 1,425,020   $ 1,386,861  

Fixed rate indebtedness

   $ 4,608,399   $ 4,209,493   $ 4,654,548   $ 4,544,974  

        Cash, trade receivables and trade payables are carried at market value, which approximates their fair values due to the short-term maturity of these instruments.

        The following methods and assumptions were used in estimating fair value disclosures for financial instruments:

LIBOR-based borrowings under credit facilities:

        The carrying amounts for LIBOR-based borrowings under the credit facilities, term loans and term notes are estimated based on the quoted market price of the financial instruments.

Long-term indebtedness:

        The fair values of long-term indebtedness are estimated based on the quoted market prices of the financial instruments. If quoted market prices were not available, the Company estimated the fair value based on the quoted market price of a financial instrument with similar characteristics.

8. 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 twenty-six week periods ended August 27, 2011 and August 28, 2010 include $7,523 and $9,735, respectively, of compensation costs related to the company's stock-based compensation arrangements.

        The total number and type of grants and the related weighted average fair value for the thirteen week periods ended August 27, 2011 and August 28, 2010 are as follows:

 
   August 27, 2011   August 28, 2010  
 
   Shares   Weighted
Average
Fair Value 		  Shares   Weighted
Average
Fair Value 		 

Stock options granted

     17,714   $ 0.82     17,384   $ 0.71  

Stock awards granted

     8,526   $ 1.23     4,574   $ 1.07  
                       
 

Total awards

     26,240           21,958        
                       

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

8. Stock Options and Stock Awards (Continued)

        Typically, stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees. During fiscal 2012, certain employee stock options and awards were issued that vest 50% in year 3 and 50% in year four. Non-employee director options granted vest, and are subsequently exercisable in equal annual installments over a three-year period. Stock awards granted vest in equal annual installments over a three-year period. Beginning in fiscal 2011, stock awards granted to non-employee directors vest 80% in year one, 10% in year two and 10% in year three.

        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:

 
   Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		 

Expected stock price volatility

     79 %   79 %

Expected dividend yield

     0 %   0 %

Risk-free interest rate

     1.5 %   1.9 %

Expected option life

     5.5 years     5.5 years  

        As of August 27, 2011, there was $25,213 of total unrecognized pre-tax compensation costs related to unvested stock options, net of estimated forfeitures. These costs are expected to be recognized over a weighted average period of 2.86 years. As of August 27, 2011, there was $12,347 of total unrecognized pre-tax compensation costs related to unvested restricted stock grants, net of estimated forfeitures. These costs are expected to be recognized over a weighted average period of 2.84 years.

        On March 21, 2011, the Company launched a Stock Option Exchange Program ("Program") for eligible associates only. Under the Program, eligible associates had the opportunity to surrender certain stock options for a lesser number of new stock options with an exercise price that was determined based on the closing market price on April 21, 2011, the day the Program concluded. The number of new options was determined by applying exchange ratios that resulted in providing new stock options with an aggregate fair value that approximated the aggregate fair value of the options they replaced. The new options vest over two years and have a five year life with an exercise price of $1.03. A total of 14.0 million options with an average exercise price in excess of $1.77 were cancelled and 5.3 million new options were granted with an exercise price of $1.03. The Company recognized a minimal incremental compensation expense as a result of the Program.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

9. Retirement Plans

        Net periodic pension expense recorded in the thirteen and twenty-six week periods ended August 27, 2011 and August 28, 2010, for the Company's defined benefit plans includes the following components:

 
   Defined Benefit
Pension Plan 		  Nonqualified
Executive
Retirement Plans 		  Defined Benefit
Pension Plan 		  Nonqualified
Executive
Retirement Plans 		 
 
   Thirteen Week Period Ended   Twenty-Six Week Period Ended  
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Service cost

   $ 838   $ 809   $ 5   $ 18   $ 1,676   $ 1,618   $ 10   $ 36  

Interest cost

     1,518     1,516     192     212     3,036     3,032     385     423  

Expected return on plan assets

     (1,505 )   (1,248 )   —     —     (3,010 )   (2,496 )   —     —  

Amortization of unrecognized prior service cost

     157     215     —     —     314     430     —     —  

Amortization of unrecognized net loss (gain)

     422     507     —     (332 )   844     1,014     —     (664 )
                                   

Net pension expense (income)

   $ 1,430   $ 1,799   $ 197   $ (102 ) $ 2,860   $ 3,598   $ 395   $ (205 )
                                   

        During the thirteen and twenty-six week periods ended August 27, 2011 the Company contributed $378 and $784, respectively, to the Nonqualified Executive Retirement Plans. In addition, the Company prepaid $5,100 to the Defined Benefit Pension Plan during fiscal 2011. During the remainder of fiscal 2012, the Company expects to contribute $784 to the Nonqualified Executive Retirement Plans and $5,819 to the Defined Benefit Pension Plan.

10. Commitments and Contingencies

        While the Company cannot predict with certainty the timing or outcome of the legal matters described below, the Company does not believe that any of these matters will have a material adverse effect on its business or financial condition. The Company cannot give assurance, however, that an unfavorable outcome in one or more of these matters will not have a material adverse effect on its results of operations for the period in which they are resolved.

        The Company is currently a defendant in several putative collective or class action lawsuits filed in federal or state courts in several states, including Pennsylvania, New Jersey, New York, Maryland, Massachusetts, Maine, Washington and Oregon, purportedly on behalf of, in some cases (i) current and former assistant store managers or (ii) current and former store managers and assistant store managers, respectively, working in the Company's stores at various locations. The lawsuits allege violations of the Fair Labor Standards Act and of certain state wage and hour statutes. The lawsuits seek various

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

10. Commitments and Contingencies (Continued)


combinations of unpaid compensation (including overtime compensation), liquidated damages, exemplary damages, pre-and post-judgment interest as well as attorneys' fees and costs. In one of the cases, Craig et al v. Rite Aid Corporation et al, pending in the United States District Court for the Middle District of Pennsylvania, brought on behalf of current and former assistant store managers, the Court, on December 9, 2009, conditionally certified a nationwide collective group of individuals who worked for the Company as assistant store managers since December 9, 2006. Notice of the Craig action has been sent to the purported members of the collective group (approximately 6,700 current and former assistant store managers) and approximately 1,100 have joined the Craig action. In another of the cases, Indergit v. Rite Aid Corporation et al, pending in the United States District Court for the Southern District of New York, brought on behalf of current and former store managers and assistant store managers, the Court, on April 2, 2010, conditionally certified a nationwide collective group of individuals who worked for the Company as store managers since March 31, 2007. The Court ordered that Notice of the Indergit action be sent to the purported members of the collective group (approximately 7,000 current and former store managers) and approximately 1,550 have joined the Indergit action. At this time, the Company is not able to predict the outcome of these lawsuits, or any possible monetary exposure associated with the lawsuits. The Company's management believes, however, that the lawsuits are without merit and not appropriate for collective or class action treatment. The Company is vigorously defending all of these claims.

        The Company is currently a defendant in several putative class action lawsuits filed in state courts in California alleging violations of California wage and hour laws pertaining primarily to pay for missed meals and rest periods. These suits purport to be class actions and seek substantial damages. At this time, the Company is not able to predict the outcome of these lawsuits, or any possible monetary exposure associated with the lawsuits. The Company's management believes, however, that the plaintiffs' allegations are without merit and that their claims are not appropriate for class action treatment. The Company is vigorously defending all of these claims.

        The Company was served with a United States Department of Health and Human Services Office of the Inspector General ("OIG") subpoena dated March 5, 2010 in connection with an investigation being conducted by the OIG, the United States Attorney's Office for the Central District of California and the United States Department of Justice Commercial Litigation Branch. The subpoena requests records related to any gift card or similar programs for customers who transferred prescriptions for drugs or medicines to the Company's pharmacies, and whether any customers who receive federally funded prescription benefits (e.g. Medicare and Medicaid) may have benefited from those programs. The Company is in the process of completing its production of records in response to the subpoena and is unable to predict with certainty the timing or outcome of any review by the government of such information.

        The Company received a subpoena dated May 9, 2011 from certain California counties seeking information regarding compliance with environmental regulations governing the management of hazardous waste. The Company is completing its production of records in response to the subpoena. The Company is unable to predict with certainty the timing or outcome of any review by the government of such information.

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RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Thirteen and Twenty-Six Week Periods Ended August 27, 2011 and August 28, 2010

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

(Unaudited)

10. Commitments and Contingencies (Continued)

        The Company was served with a Civil Investigative Demand Subpoena Duces Tecum dated August 26, 2011 by the United States Attorney's Office for the Eastern District of Michigan. The subpoena requests records regarding the relationship of Rite Aid's Rx Savings Program to the reporting of usual and customary charges to publicly funded health programs. The Company is in the process of communicating with the U.S. Attorney's Office regarding the scope of the subpoena and is unable to predict with certainty the timing or outcome of any review by the government of such information.

        The Company is subject from time to time to various claims and lawsuits and governmental investigations arising in the ordinary course of our business. While the Company's management cannot predict the outcome of these claims with certainty, the Company's management does not believe that the outcome of any of these legal matters will have a material adverse effect on its business, consolidated results of operations or financial position.

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

Overview

        Net loss for the thirteen week period ended August 27, 2011 was $92.3 million compared to the net loss of $197.0 million for the thirteen week period ended August 28, 2010. The improvement in net loss is due primarily to increased revenues, lower selling, general and administrative expenses, and gains on debt retirements in the current period compared to losses on debt retirements in the prior period. Revenues increased in the current quarter due to increased same store sales in both pharmacy and front-end, partially offset by store closures. There was a decrease in gross margin rate, due to higher markdowns associated with our wellness + loyalty program, and pharmacy reimbursement rate pressures on prescription sales, as described in detail in the following sections.

        Net loss for the twenty-six week period ended August 27, 2011 was $155.3 million compared to the net loss of $270.7 million for the twenty-six week period August 28, 2010. The improvement in net loss is due primarily to increased revenues, lower selling, general and administrative expenses, and lower losses on debt modifications and retirements. Revenues increased due to increased same store sales, partially offset by store closures. There was a decrease in gross margin rate due to higher markdowns associated with our wellness + loyalty programs and pharmacy reimbursement rate pressures on prescription sales, as described in detail in the following sections.

Results of Operations

 
   Thirteen Week Period Ended   Twenty-Six Week Period Ended  
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 
 
   (dollars in thousands)
  

Revenues

   $ 6,271,091   $ 6,161,752   $ 12,661,884   $ 12,556,088  

Revenue growth (decline)

     1.8 %   (2.5 )%   0.8 %   (2.3 )%

Same store sales growth (decline)

     2.2 %   (1.5 )%   1.5 %   (1.2 )%

Pharmacy sales growth (decline)

     1.4 %   (2.6 )%   1.0 %   (2.3 )%

Same store pharmacy sales growth (decline)

     2.0 %   (1.8 )%   1.6 %   (1.3 )%

Pharmacy sales as a % of total sales

     67.8 %   68.1 %   68.3 %   68.2 %

Third party sales as a % of total pharmacy sales

     96.4 %   96.1 %   96.5 %   96.2 %

Front-end sales growth (decline)

     2.5 %   (2.4 )%   0.5 %   (2.4 )%

Same store front-end sales growth (decline)

     2.5 %   (0.9 )%   1.3 %   (1.1 )%

Front-end sales as a % of total sales

     32.2 %   31.9 %   31.7 %   31.8 %

Store data:

                          
 

Total stores (beginning of period)

     4,704     4,767     4,714     4,780  
 

New stores

     —     —     —     2  
 

Closed stores

     (7 )   (20 )   (17 )   (35 )
 

Total stores (end of period)

     4,697     4,747     4,697     4,747  
 

Relocated stores

     5     5     11     13  
 

Remodeled stores

     35     1     38     2  

        Revenues increased 1.8% and declined 2.5% for the thirteen weeks ended August 27, 2011 and August 28, 2010, respectively. Revenues increased 0.8% and declined 2.3% in the twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively. Revenue increases for the thirteen and twenty-six week periods ended August 27, 2011 were driven by an increase in same store sales,

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reflecting the positive impact of our wellness + loyalty program and other management initiatives to increase sales and prescriptions. wellness + continues to be one of our significant sales initiative programs. Enrolled wellness + members, who tend to buy more and shop more often, reached approximately 43 million as of August 27, 2011. These increases were partially offset by store closures. At the end of the period, we operated 50 fewer stores than at the end of the same period last year.

        Pharmacy same store sales increased by 2.0% and 1.6% in the thirteen and twenty-six week periods ended August 27, 2011. The increase was driven by a same store prescription increase of 0.1% and 0.3% for the thirteen and twenty-six week periods ended August 27, 2011 and by inflation on brand prescriptions, partially offset by an approximate 1.5% negative impact from new generic introductions.

        Front-end same store sales increased by 2.5% and 1.3% in the thirteen and twenty-six week periods ended August 27, 2011. The increase in same store sales reflects the positive impact of our wellness + loyalty program and other management initiatives to increase sales in the front-end.

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 
 
   (dollars in thousands)
  

Cost of goods sold

   $ 4,622,130   $ 4,523,092   $ 9,322,004   $ 9,205,724  

Gross profit

     1,648,961     1,638,660     3,339,880     3,350,364  

Gross margin rate

     26.3 %   26.6 %   26.4 %   26.7 %

Selling, general and administrative expenses

     1,603,752     1,626,704     3,189,988     3,249,638  

Selling, general and administrative expenses as a percentage of revenues

     25.6 %   26.4 %   25.2 %   25.9 %

Lease termination and impairment charges

     15,118     26,360     32,208     39,817  

Interest expense

     130,829     139,716     261,589     281,335  

        Gross margin was 26.3% for the thirteen week period ended August 27, 2011 compared to 26.6% of sales for the thirteen week period ended August 28, 2010. The decrease in gross margin rate was due to both lower front-end gross margin and lower pharmacy gross margin. The decrease in front-end gross margin was due primarily to higher markdowns associated with our wellness + loyalty program. Pharmacy gross margin decreased due to continued reimbursement pressures. Overall gross profit increased due to higher same store sales and a reduced wellness + revenue deferral, partially offset by wellness + program markdowns and reimbursement pressures described above.

        Gross margin rate was 26.4% for the twenty-six week period ended August 27, 2011 compared to 26.7% of sales for the twenty-six week period ended August 28, 2010. The decrease in gross margin was due to lower front-end and pharmacy gross margin. The decrease in front-end gross margin was due primarily to higher markdowns and revenue deferrals both associated with our wellness + loyalty program. Pharmacy gross margin dollars increased due to higher same store sales, which were partially offset by continued reimbursement pressures.

        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. The LIFO charges were $20.0 million and $40.0 million for the thirteen and twenty-six week periods ended August 27, 2011 compared to LIFO charges of $20.5 million and $41.1 million for the thirteen and twenty-six week periods ended August 28, 2010.

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        SG&A as a percentage of revenues was 25.6% in the thirteen week period ended August 27, 2011 compared to 26.4% in the thirteen week period ended August 28, 2010. SG&A as a percentage of revenues was 25.2% in the twenty-six week period ended August 27, 2011 compared to 25.9% in the twenty-six week period ended August 28, 2010. The decrease in SG&A as a percentage of revenues for the thirteen and twenty-six week periods is due primarily to decreased depreciation and amortization and lower salaries and corporate overhead resulting from management's continued focus on cost control. These decreases are partially offset by higher self insurance liabilities of $8.6 million due primarily to a reduction in our discount rate.

        Lease termination and impairment charges consist of amounts and number of locations as follows:

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 

Impairment charges

   $ 657   $ 1,312   $ 1,391   $ 2,446  

Facility and equipment lease exit charges

     14,461     25,048     30,817     37,371  
                   

  $ 15,118   $ 26,360   $ 32,208   $ 39,817  
                   

Impairment charges

                          

Number of Stores

     13     7     27     23  

Number of Distribution Centers

     —     —     —     —  
                   

    13     7     27     23  
                   

Lease exit charges

                          

Number of Stores

     8     12     11     20  

Number of Distribution Centers

     —     —     —     —  
                   

    8     12     11     20  
                   

        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.

        Facility and Equipment Lease Exit Charges:    Charges to close a store, which principally consist of lease termination costs, are recorded at the time the store is closed and all inventory is liquidated, pursuant to the guidance set forth in ASC 420, "Exit or Disposal Cost Obligations." We calculate our liability for closed stores on a store-by-store basis. The calculation includes the discounted effect of future minimum lease payments and related ancillary costs, from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting properties or through favorable lease terminations. We evaluate these assumptions each quarter and adjust the liability accordingly. As part of our ongoing business activities, we assess stores and distribution centers for potential closure. Decisions to close stores or distribution centers in future periods would result in charges for lease exit costs and liquidation of inventory, as well as impairment of assets at these locations.

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        Interest expense was $130.8 million and $261.6 million for the thirteen and twenty-six week periods ended August 27, 2011, compared to $139.7 million and $281.3 million for the thirteen and twenty-six week periods ended August 28, 2010. The decrease in interest expense for the thirteen and twenty-six week periods ended August 27, 2011 is due primarily to favorable interest rates resulting from our March 2011 Tranche 3 Term Loan refinancing and our August 2010 refinancing of our Tranche 4 Term Loan. The weighted average interest rates on our indebtedness for the twenty-six week period ended August 27, 2011 and August 28, 2010 were 7.4% and 7.5%, respectively.

        We recorded an income tax benefit of $2.7 million and an income tax expense of $2.8 million for the thirteen week periods and an income tax benefit of $0.4 million and an income tax expense of $10.0 million for the twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively. The income tax benefit for the thirteen and twenty-six week periods ended August 27, 2011 is primarily attributable to a net benefit of $5.7 million for discrete items related to the recognition of previously unrecognized tax benefits offset by an accrual of state and local taxes and adjustments to unrecognized tax benefits. The income tax expense for the thirteen and twenty-six week periods ended August 28, 2010 is primarily due to the need for an accrual of additional state taxes resulting from the receipt of a final audit determination and adjustments to unrecognized tax benefits.

        The IRS has completed the examination of the consolidated U.S. income tax returns for Brooks Eckerd for the periods leading up to the acquisition which include fiscal years 2004 through 2007. The revenue agent reports (RAR) for these periods have been received and we are appealing these audit results. We believe we have adequately provided for any potential adverse results. Furthermore, we are indemnified by Jean Coutu Group who will reimburse us for any assessment that may arise.

        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.

        Over the next 12 months, we believe that it is reasonably possible that the amount of unrecognized tax positions including interest and penalties could decrease tax liabilities by approximately $97.7 million, which would impact the effective tax rate if our tax positions are sustained upon audit, the controlling statute of limitations expires or we agree to a disallowance. The primary driver of the decrease is contingent upon the timing of the conclusion of the pre-acquisition period's audit of the consolidated U.S. income tax returns for Brooks Eckerd and will impact the effective rate by decreasing tax expense by approximately $60.7 million. The corresponding indemnification asset will reverse concurrently.

        We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is required. A cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable. Based on the negative evidence, we are precluded from relying on projections of future taxable income to support the recognition of deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the existence of sufficient taxable income generated in the carryforward periods.

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Liquidity and Capital Resources

        We have three primary sources of liquidity: (i) cash and cash equivalents, (ii) cash provided by operating activities and (iii) borrowings under the revolving credit facility under our 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 August 27, 2011 was $964.7 million, which consisted of revolver borrowing capacity of $963.1 million and invested cash of $1.6 million.

        Our senior secured credit facility consists of a $1.175 billion revolving credit facility and two term loans. Borrowings under the revolving credit facility bear interest at a rate per annum between LIBOR plus 3.25% and LIBOR plus 3.75%, if we choose to make LIBOR borrowings, or between Citibank's base rate plus 2.25% and Citibank's base rate plus 2.75% in each case based upon the amount of revolver availability as defined in the senior secured credit facility. We are required to pay fees between 0.50% and 0.75% per annum on the daily unused amount of the revolver, depending on the amount of revolver availability. Amounts drawn under the revolver become due and payable on August 19, 2015, provided that such maturity date shall instead be April 18, 2014 in the event that on or prior to April 18, 2014 we do not repay, refinance or otherwise extend the maturity date of our Tranche 2 Term Loan (as defined below) to a date that is at least 90 days after August 19, 2015 and, in the case of a repayment or refinancing, we must have at least $500.0 million of availability under the revolver.

        Our ability to borrow under the revolver is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At August 27, 2011, we had $73.0 million borrowings outstanding under the revolver and had letters of credit outstanding against the revolver of $138.9 million, which resulted in additional borrowing capacity of $963.1 million.

        The credit facility also includes our $1.044 billion senior secured term loan (the "Tranche 2 Term Loan"). The Tranche 2 Term Loan will mature on June 4, 2014 and currently bears interest at a rate per annum equal to LIBOR plus 1.75%, if we choose to make LIBOR borrowings, or at Citibank's base rate plus 0.75%. We must make mandatory prepayments of the Tranche 2 Term Loan with the proceeds of asset dispositions and casualty events (subject to certain limitations), with a portion of any excess cash flow generated by us (as defined in the senior secured credit facility) and with the proceeds of certain issuances of equity and debt (subject to certain exceptions). If at any time there is a shortfall in our borrowing base under our senior secured credit facility, prepayment of the Tranche 2 Term Loan may also be required.

        On March 3, 2011, we refinanced the Tranche 3 Term Loan with a $331.8 million senior secured term loan (the "Tranche 5 Term Loan"). The Tranche 5 Term Loan matures on March 3, 2018, although the maturity will instead be December 1, 2014 in the event that we do not repay or refinance our outstanding 8.625% senior notes due 2015 prior to that time, or September 16, 2015, in the event that we do not repay or refinance our outstanding 9.375% senior notes due 2015 prior to that time. The Tranche 5 Term Loan bears interest at a rate per annum equal to LIBOR plus 3.25% with a 1.25% LIBOR floor, and is subject to a 1% prepayment fee in the event it is refinanced within the first year after issuance with the proceeds of a substantially concurrent issuance of new loans or other indebtedness incurred for the primary purpose of repaying, refinancing or replacing the Tranche 5 Term Loan. We must make mandatory prepayments of the Tranche 5 Term Loan with the proceeds of asset dispositions and casualty events (subject to certain limitations), with a portion of any excess cash flow generated by us (as defined in the senior secured credit facility) and with the proceeds of certain issuances of equity and debt (subject to certain exceptions). If at any time there is a shortfall in our

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borrowing base under our senior secured credit facility, prepayment of the Tranche 5 Term Loan may also be required.

        The senior secured credit facility also restricts us and 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 deposit accounts, cash necessary to cover our current liabilities and certain other exceptions) and from accumulating cash on hand with revolver borrowings in excess of $100.0 million over three consecutive business days. The 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 senior secured credit facility or (b) the sum of revolver availability under our senior secured credit facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than $100.0 million for three consecutive business days (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 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 senior secured credit facility.

        The senior secured credit facility allows us to have outstanding, at any time, up to $1.5 billion in secured second priority debt and unsecured debt in addition to borrowings under the senior secured credit facility and existing indebtedness, provided that not in excess of $750.0 million of such secured second priority debt and unsecured debt shall mature or require scheduled payments of principal prior to three months after June 4, 2014. The senior secured credit facility allows us to incur an unlimited amount of unsecured debt with a maturity beyond three months after June 4, 2014; however, 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 of said debt. The senior secured facility also allows, so long as the senior secured credit facility is not in default, for the repurchase of any debt with a maturity on or before June 4, 2014, for the voluntary repurchase of debt with a maturity after June 4, 2014 and the mandatory repurchase of our 8.5% convertible notes due 2015 if we maintain availability on the revolving credit facility of at least $100.0 million.

        Our senior secured credit facility contains covenants which place restrictions on the incurrence of debt beyond the restrictions described above, the payment of dividends, sale of assets, mergers and acquisitions and the granting of liens. Our credit facility has a financial covenant, which is the maintenance of a fixed charge coverage ratio. The covenant requires that, if availability on the revolving credit facility is less than $150.0 million, we maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 through November 26, 2011. This ratio increases to 1.05 to 1.00 in the last quarter of fiscal 2012 and remains at that level for the remaining term of the facility. As of August 27, 2011, we were in compliance with this financial covenant.

        The senior secured credit facility provides for 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 repurchase of such debt. The August 2010 amendments to the senior secured credit facility exclude the mandatory repurchase of the 8.5% convertible notes due 2015 from this event of default.

        The indentures that govern our secured and guaranteed unsecured notes contain restrictions on the amount of additional secured and unsecured debt that can be incurred by us. As of August 27, 2011, the amount of additional secured debt that could be incurred under these indentures was approximately $1.1 billion (which amount does not include the ability to enter into certain sale and

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leaseback transactions). However, we could not incur any additional secured debt as of February 27, 2010 assuming a fully drawn revolver and the outstanding letters of credit. The ability to issue additional unsecured debt under these indentures is governed by an interest coverage ratio test.

        During August 2011, the Company repurchased $41.0 million of its 8.625% senior notes due March 2015, $5.0 million of its 9.375% senior notes due December 2015 and $4.5 million of its 6.875% senior debentures due August 2013. These repurchases resulted in a gain for the period of $5.0 million.

        In August 2010, we repaid all borrowings outstanding under our revolving credit facility due September 2012 and cancelled all of our commitments thereunder and replaced such facility with a new $1.175 billion revolving credit facility (the "New Revolver") due 2015 (or such earlier date as noted below). We also repaid and retired all borrowings and accrued interest due under our $647.7 million Tranche 4 Term Loan due June 2015. We financed these repayments with the net proceeds from an issuance of $650.0 million of new 8.00% Senior Secured Notes due August 2020 (collectively, the "Refinancing"), together with cash on hand. The prepayment of the Tranche 4 Term Loan occurred prior to the second anniversary of the borrowing thereof and therefore a 3.0% penalty of the principal amount outstanding was paid totaling $19.4 million which was included in loss on debt modifications for the thirteen week period ended August 28, 2010. The loss on debt modifications and retirements for the thirteen week period ended August 28, 2010 also included the write-off of debt issue costs of $13.1 million and net unamortized original issuance discounts of $11.4 million. Additionally, we incurred fees and expenses of $34.0 million to consummate the Refinancing, which are being deferred and amortized over the terms of the related debt instruments.

        Cash flow provided by operating activities was $254.1 million and $513.8 million in the twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively. Operating cash flow was positively impacted by an increase in accounts payable due to the timing of purchases as well as rent, pension funding and interest payments, partially offset by increases in inventory for seasonal build, price inflation and increased store inventory to improve in stock levels.

        Cash used in investing activities was $97.4 million and $73.8 million for the twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively. Cash used for the purchase of property, plant, equipment and prescription files, net of proceeds from the sale of assets were higher compared to the prior year.

        Cash used in financing activities was $169.4 million and $411.2 million for the twenty-six week periods ended August 27, 2011 and August 28, 2010, respectively. Cash used in financing activities for the twenty-six weeks ended August 27, 2011 was primarily due to the March 2011 refinancing of our Tranche 3 Term Loan, other debt repayments and a decrease in our zero balance cash accounts.

        During the thirteen week period ended August 27, 2011, we spent $49.9 million on capital expenditures, consisting of $13.8 million related to new store construction, store relocation and store remodel projects, $27.9 million related to technology enhancements, improvements to distribution centers and other corporate requirements, and $8.2 million related to the purchase of prescription files from independent pharmacists. We plan on making total capital expenditures of approximately $250.0 million during fiscal 2012, consisting of approximately 49.0% related to store relocations and remodels and new store construction, 31.0% related to infrastructure and maintenance requirements and 20.0% related to prescription file purchases. Management expects that these capital expenditures will be financed primarily with cash flow from operating activities.

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        We are highly leveraged. Our high level of indebtedness: (i) limits our ability to obtain additional financing; (ii) limits our flexibility in planning for, or reacting to, changes in our business and the industry; (iii) places us at a competitive disadvantage relative to our competitors with less debt; (iv) renders us more vulnerable to general adverse economic and industry conditions; and (v) requires 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 senior secured credit facility 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 the restriction on our credit facility, that could result if we fail to meet the fixed charge covenant in our senior secured credit facility, to have any impact on our business 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. Should we determine, at any time, that it is necessary to obtain additional short-term liquidity, we will evaluate our alternatives and take appropriate steps to obtain sufficient additional funds. There can be no assurance that any such supplemental funding, if sought, could be obtained or if obtained, would be on terms acceptable to us. From time to time, we may seek deleveraging transactions, including entering into transactions to exchange debt for shares of common stock, repurchase outstanding indebtedness or seek to refinance our outstanding debt or may otherwise seek transactions to reduce interest expense and extend debt maturities.

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 2011 10-K.

Factors Affecting Our Future Prospects

        For a discussion of risks related to our financial condition, operations and industry, refer to "Risk Factors" included herein and in our fiscal 2011 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our fiscal 2011 10-K.

Adjusted EBITDA

        In addition to net income determined in accordance with GAAP, we use certain non-GAAP measures, such as "Adjusted EBITDA", in assessing our operating performance. We believe the non-GAAP measures serve as an appropriate measure to be used 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, charges or credits for facility closing and impairment, inventory write-downs related to store closings, stock-based compensation expense, debt modifications and retirements, sale of assets and investments, revenue deferrals related to customer loyalty programs and other items. 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 operating performance of prior periods and external comparisons to competitors' historical operating performance. In addition, incentive compensation is based on Adjusted EBITDA and we base certain of our forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA.

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        The following is a reconciliation of Adjusted EBITDA to our net loss for the thirteen and twenty-six week periods ended August 27, 2011 and August 28, 2010:

 
   Thirteen Week
Period Ended 		  Twenty-Six Week
Period Ended 		 
 
   August 27,
2011 		  August 28,
2010 		  August 27,
2011 		  August 28,
2010 		 
 
   (dollars in thousands)
  

Net loss

   $ (92,254 ) $ (196,976 ) $ (155,336 ) $ (270,660 )
 

Interest expense

     130,829     139,716     261,589     281,335  
 

Income tax (benefit) expense

     (2,712 )   2,826     (439 )   9,967  
 

Depreciation and amortization expense

     108,712     126,513     225,802     254,013  
 

LIFO charges

     20,001     20,528     40,002     41,056  
 

Lease termination and impairment charges

     15,118     26,360     32,208     39,817  
 

Stock-based compensation expense

     3,952     4,250     7,523     9,735  
 

Gain on sale of assets, net

     (848 )   (3,973 )   (5,640 )   (3,736 )
 

(Gain) loss on debt modifications and retirements, net

     (4,924 )   44,003     17,510     44,003  
 

Closed facility liquidation expense

     985     1,811     3,632     4,233  
 

Severance costs

     305     —     256     10  
 

Customer loyalty card programs revenue deferral

     6,885     15,394     28,751     20,431  
 

Other

     (1,793 )   792     (8,748 )   830  
                   

Adjusted EBITDA

   $ 184,256   $ 181,244   $ 447,110   $ 431,034  
                   

        In addition to Adjusted EBITDA, 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 EBITDA Gross Margin (gross margin adjusted for non-EBITDA items), EBITDA SG&A (SG&A expenses adjusted for non-EBITDA items), FIFO Gross Margin (gross margin before LIFO charges) and Free Cash Flow (Adjusted EBITDA less cash paid for interest, rent on closed stores, capital expenditures and the change in working capital).

        We include these non-GAAP financial measures in our earnings announcements and guidance 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 or other non-GAAP measures should not be considered in isolation from, and is 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.

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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 August 27, 2011.

 
   2012   2013   2014   2015   2016   Thereafter   Total   Fair Value
at
08/27/2011 		 
 
   (dollars in thousands)
  

Long-term debt, including current portion

                                                  

Fixed rate

   $ 5,179   $ 114   $ 186,355   $ —   $ 928,188   $ 3,533,000   $ 4,652,836   $ 4,252,896  

Average Interest Rate

     1.19 %   7.00 %   6.95 %   0.00 %   8.94 %   8.90 %   8.82 %      

Variable Rate

   $ —   $ —   $ 2,971   $ 1,044,692   $ 76,430   $ 326,708   $ 1,450,801   $ 1,302,093  

Average Interest Rate

     0.0 %   0.0 %   1.96 %   1.97 %   5.46 %   4.50 %   2.72 %      

Total

   $ 5,179   $ 114   $ 189,326   $ 1,044,692   $ 1,004,618   $ 3,859,708   $ 6,103,637   $ 5,554,989  

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

        The interest rate on our variable rate borrowings, which include our revolving credit facility and our Tranche 2 Term loans and Tranche 5 Term loans, are all based on LIBOR. However, the interest rate on our Tranche 5 Term loans has a LIBOR floor of 125 basis points. If the market rates of interest for LIBOR changed by 100 basis points as of August 27, 2011, our annual interest expense would change by approximately $10.4 million.

        A change in interest rates generally 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.

ITEM 4.    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.

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        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

        While we cannot predict with certainty the timing or outcome of the legal matters described below, we do not believe that any of these matters will have a material adverse effect on our business or financial condition. We cannot give assurance, however, that an unfavorable outcome in one or more of these matters will not have a material adverse effect on our results of operations for the period in which they are resolved.

        We are currently a defendant in several putative collective or class action lawsuits filed in federal or state courts in several states, including Pennsylvania, New Jersey, New York, Maryland, Massachusetts, Maine, Washington and Oregon, purportedly on behalf of, in some cases (i) current and former assistant store managers or (ii) current and former store managers and assistant store managers, respectively, working in our stores at various locations. The lawsuits allege violations of the Fair Labor Standards Act and of certain state wage and hour statutes. The lawsuits seek various combinations of unpaid compensation (including overtime compensation), liquidated damages, exemplary damages, pre-and post-judgment interest as well as attorneys' fees and costs. In one of the cases, Craig et al v. Rite Aid Corporation et al, pending in the United States District Court for the Middle District of Pennsylvania, brought on behalf of current and former assistant store managers, the Court, on December 9, 2009, conditionally certified a nationwide collective group of individuals who worked for us as assistant store managers since December 9, 2006. Notice of the Craig action has been sent to the purported members of the collective group (approximately 6,700 current and former assistant store managers) and approximately 1,100 have joined the Craig action. In another of the cases, Indergit v. Rite Aid Corporation et al, pending in the United States District Court for the Southern District of New York, brought on behalf of current and former store managers and assistant store managers, the Court, on April 2, 2010, conditionally certified a nationwide collective group of individuals who worked for us 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 have joined the Indergit action. At this time, we are not able to predict the outcome of these lawsuits, or any possible monetary exposure associated with the lawsuits. Our management believes, however, that the lawsuits are without merit and not appropriate for collective or class action treatment. We are vigorously defending all of these claims.

        We are currently a defendant in several putative class action lawsuits filed in state courts in California alleging violations of California wage and hour laws pertaining primarily to pay for missed meals and rest periods. These suits purport to be class actions and seek substantial damages. At this time, we are not able to predict the outcome of these lawsuits, or any possible monetary exposure associated with the lawsuits. Our management believes, however, that the plaintiffs' allegations are without merit and that their claims are not appropriate for class action treatment. We are vigorously defending all of these claims.

        We were served with a United States Department of Health and Human Services Office of the Inspector General ("OIG") subpoena dated March 5, 2010 in connection with an investigation being conducted by the OIG, the United States Attorney's Office for the Central District of California and the United States Department of Justice Commercial Litigation Branch. The subpoena requests records related to any gift card or similar programs for customers who transferred prescriptions for drugs or

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medicines to the our pharmacies, and whether any customers who receive federally funded prescription benefits (e.g. Medicare and Medicaid) may have benefited from those programs. We are in the process of completing its production of records in response to the subpoena and are unable to predict with certainty the timing or outcome of any review by the government of such information.

        We received a subpoena dated May 9, 2011 from certain California counties seeking information regarding compliance with environmental regulations governing the management of hazardous waste. We are completing its production of records in response to the subpoena. We are unable to predict with certainty the timing or outcome of any review by the government of such information.

        We were served with a Civil Investigative Demand Subpoena Duces Tecum dated August 26, 2011 by the United States Attorney's Office for the Eastern District of Michigan. The subpoena requests records regarding the relationship of Rite Aid's Rx Savings Program to the reporting of usual and customary charges to publicly funded health programs. We are in the process of communicating with the U.S. Attorney's Office regarding the scope of the subpoena and are unable to predict with certainty the timing or outcome of any review by the government of such information.

        We are subject from time to time to various claims and lawsuits and governmental investigations arising in the ordinary course of our business. While our management cannot predict the outcome of these claims with certainty, our management does not believe that the outcome of any of these legal matters will have a material adverse effect on its business, consolidated results of operations or financial position.

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 Annual Report on Form 10-K, for the year ended February 26, 2011 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 second quarter of fiscal 2012.

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 		 

May 29 to June 25, 2011(1)

     756,025   $ 1.18     —     —  
                   

June 26 to July 23, 2011

     —     —     —     —  
                   

July 24 to August 27, 2011

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

ITEM 3.    Defaults Upon Senior Securities

        Not applicable.

ITEM 4.    Removed and Reserved

ITEM 5.    Other Information

        Not applicable.

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ITEM 6.    Exhibits

Exhibit
Numbers 		  Description   Incorporation By Reference To
  2.1   Amended and Restated Stockholder Agreement, dated August 23, 2006, amended and restated as of June 4, 2007, by and between Rite Aid Corporation, The Jean Coutu Group (PJC) Inc., Jean Coutu, Marcelle Coutu, Francois J. Coutu, Michel Coutu, Louis Coutu, Sylvie Coutu and Marie-Josee Coutu   Exhibit 2.2 to Form 10-Q, filed on July 12, 2007

 
2.2
 
Letter Agreement to the Amended and Restated Stockholder Agreement, dated April 20, 2010, by and between Rite Aid Corporation and The Jean Coutu Group (PJC) Inc.
 
Exhibit 2.2 to Form 10-Q, filed on July 6, 2010

 
2.3
 
Registration Rights Agreement, dated August 23, 2006, by and between Rite Aid Corporation and The Jean Coutu Group (PJC) Inc.
 
Exhibit 10.2 to Form 8-K, filed on August 24, 2006

 
3.1
 
Restated Certificate of Incorporation, dated December 12, 1996
 
Exhibit 3(i) to Form 8-K, filed on November 2, 1999

 
3.2
 
Certificate of Amendment to the Restated Certificate of Incorporation, dated February 22, 1999
 
Exhibit 3(ii) to Form 8-K, filed on November 2, 1999

 
3.3
 
Certificate of Amendment to the Restated Certificate of Incorporation, dated June 27, 2001
 
Exhibit 3.4 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001

 
3.4
 
Certificate of Amendment to the Restated Certificate of Incorporation, dated June 4, 2007
 
Exhibit 4.4 to Registration Statement on Form S-8, File No. 333-146531, filed on October 5, 2007

 
3.5
 
Certificate of Amendment to the Restated Certificate of Incorporation, dated June 25, 2009
 
Exhibit 3.1 to Form 10-Q, filed on July 8, 2009

 
3.6
 
7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock Certificate of Designation dated January 28, 2005
 
Exhibit 3.2 to Form 8-K, filed on February 2, 2005

 
3.7
 
6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock Certificate of Designation dated January 28, 2005
 
Exhibit 3.3 to Form 8-K, filed on February 2, 2005

 
3.8
 
Amended and Restated By-Laws
 
Exhibit 3.1 to Form 8-K, filed on January 27, 2010

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Exhibit
Numbers 		  Description   Incorporation By Reference To
  4.1   Indenture, dated August 1, 1993, by and 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 and 6.875% Notes due 2013   Exhibit 4A to Registration Statement on Form S-3, File No. 033-63794, filed on June 3, 1993

 
4.2
 
Supplemental Indenture dated as of February 3, 2000, between Rite Aid Corporation, as issuer, and U.S. Bank Trust National Association as successor to Morgan Guaranty Trust Company of New York, to the Indenture dated as of August 1, 1993, relating to the Company's 7.70% Notes due 2027 and 6.875% Notes due 2013
 
Exhibit 4.1 to Form 8-K filed on February 7, 2000

 
4.3
 
Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company's 6.875% Notes due 2028
 
Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999

 
4.4
 
Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and Harris Trust and Savings Bank, to the Indenture dated December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank, related to the Company's 6.875% Notes due 2028
 
Exhibit 4.4 to Form 8-K filed on February 7, 2000

 
4.5
 
Indenture, dated as of May 20, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 9.25% Senior Notes due 2013
 
Exhibit 4.12 to Form 10-Q, filed on July 3, 2003

 
4.6
 
Supplemental Indenture, dated as of June 4, 2007, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Trust Company, N.A. to the Indenture, dated as of May 20, 2003, between Rite Aid Corporation and BNY Midwest Trust Company, related to the Company's 9.25% Senior Secured Notes due 2013
 
Exhibit 4.8 to Form 10-Q, filed on January 9, 2008

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Exhibit
Numbers 		  Description   Incorporation By Reference To
  4.7   Second Supplemental Indenture, dated as of June 17, 2008, between Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Trust Company, N.A., as successor trustee, to the Indenture dated as of May 20, 2003, between Rite Aid Corporation and BNY Midwest Trust Company, related to the Company's 9.25% Senior Secured Notes due 2013   Exhibit 4.10 to Form 10-Q, filed on July 10, 2008

 
4.8
 
Indenture, dated as of February 21, 2007, among Rite Aid Corporation, as issuer, the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., as trustee, related to the Company's 7.5% Senior Secured Notes due 2017
 
Exhibit 99.1 to Form 8-K, filed on February 26, 2007

 
4.9
 
Supplemental Indenture, dated as of June 4, 2007, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Trust Company, N.A. to the Indenture dated as of February 21, 2007, between Rite Aid Corporation and The Bank of New York Trust Company, N.A., related to the Company's 7.5% Senior Secured Notes due 2017
 
Exhibit 4.12 to Form 10-Q, filed on January 9, 2008

 
4.10
 
Second Supplemental Indenture, dated as of July 9, 2008, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Mellon Trust Company, N.A., as successor trustee, to the Indenture, dated as of February 15, 2007, between Rite Aid Corporation and The Bank of New York Trust Company, N.A., related to the Company's 7.5% Senior Secured Notes due 2017
 
Exhibit 4.13 to Form 10-Q, filed on July 10, 2008

 
4.11
 
Indenture, dated as of February 21, 2007, between Rite Aid Corporation, as issuer, and The Bank of New York Trust Company, N.A., as trustee, related to the Company's 8.625% Senior Notes due 2015
 
Exhibit 99.2 to Form 8-K, filed on February 26, 2007

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Exhibit
Numbers 		  Description   Incorporation By Reference To
  4.12   Supplemental Indenture, dated as of June 4, 2007, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Trust Company, N.A. to the Indenture, dated as of February 21, 2007, between Rite Aid Corporation and The Bank of New York Trust Company, N.A., related to the Company's 8.625% Senior Secured Notes due 2015   Exhibit 4.14 to Form 10-Q, filed on January 9, 2008

 
4.13
 
Second Supplemental Indenture, dated as of July 9, 2008, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Mellon Trust Company, N.A., as successor trustee, to the Indenture, dated as of February 15, 2007, between Rite Aid Corporation and The Bank of New York Trust Company, N.A., related to the Company's 8.625% Senior Notes due 2015
 
Exhibit 4.16 to Form 10-Q, filed on July 10, 2008

 
4.14
 
Amended and Restated Indenture, dated as of June 4, 2007, among Rite Aid Corporation (as successor to Rite Aid Escrow Corp.), the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., as Trustee, related to the Company's 9.375% Senior Notes due 2015
 
Exhibit 4.1 to Form 8-K, filed on June 6, 2007

 
4.15
 
First Supplemental Indenture, dated as of July 9, 2008, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Mellon Trust Company, N.A. to the Amended and Restated Indenture, dated as of June 4, 2007, among Rite Aid Corporation (as successor to Rite Aid Escrow Corp.), the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., related to the Company's 9.375% Senior Notes due 2015
 
Exhibit 4.18 to Form 10-Q, filed on July 10, 2008

 
4.16
 
Amended and Restated Indenture, dated as of June 4, 2007, among Rite Aid Corporation (as successor to Rite Aid Escrow Corp.), the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., as Trustee, related to the Company's 9.5% Senior Notes due 2017
 
Exhibit 4.2 to Form 8-K, filed on June 6, 2007

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Exhibit
Numbers 		  Description   Incorporation By Reference To
  4.17   First Supplemental Indenture, dated as of July 9, 2008, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Mellon Trust Company, N.A., as successor trustee, to the Amended and Restated Indenture, dated as of June 4, 2007, among Rite Aid Corporation (as successor to Rite Aid Escrow Corp.), the subsidiary guarantors named therein and The Bank of New York Trust Company, N.A., related to the Company's 9.5% Senior Notes due 2017   Exhibit 4.20 to Form 10-Q, filed on July 10, 2008

 
4.18
 
Indenture, dated as of May 29, 2008, between Rite Aid Corporation, as issuer, and The Bank of New York Trust Company, N.A., as trustee, related to the Company's Senior Debt Securities
 
Exhibit 4.1 to Form 8-K, filed on June 2, 2008

 
4.19
 
First Supplemental Indenture, dated as of May 29, 2008, among Rite Aid Corporation, the subsidiaries named therein and The Bank of New York Trust Company, N.A. to the Indenture dated as of May 29, 2008 between Rite Aid Corporation and The Bank of New York Trust Company, N.A., related to the Company's 8.5% Convertible Notes due 2015
 
Exhibit 4.2 to Form 8-K, filed on June 2, 2008

 
4.20
 
Indenture, dated as of July 9, 2008, between Rite Aid Corporation, as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, related to the Company's 10.375% Senior Secured Notes due 2016
 
Exhibit 4.23 to Form 10-Q, filed on July 10, 2008

 
4.21
 
Indenture, dated as of June 12, 2009, 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 9.750% Senior Secured Notes due 2016
 
Exhibit 4.1 to Form 8-K, filed on June 16, 2009

 
4.22
 
Indenture, dated as of October 26, 2009, 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 10.25% Senior Secured Notes due 2019.
 
Exhibit 4.1 to Form 8-K, filed on October 29, 2009

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Exhibit
Numbers 		  Description   Incorporation By Reference To
  4.23   Indenture, dated as of August 16, 2010, 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 8.00% Senior Secured Notes due 2020   Exhibit 4.1 to Form 8-K, filed on August 19, 2010

 
10.1
 
Amended and Restated Employment Agreement, dated as of June 23, 2011, between Rite Aid Corporation and Enio A. Montini, Jr.
 
Filed herewith

 
10.2
 
Amended and Restated Employment Agreement, dated as of July 11, 2011, between Rite Aid Corporation and Robert K. Thompson.
 
Filed herewith

 
11
 
Statement regarding computation of earnings per share. (See Note 2 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 May 28, 2011 and February 26, 2011, (ii) Condensed Consolidated Statements of Operations for the thirteen week periods ended May 28, 2011 and May 29, 2010, (iii) Condensed Consolidated Statements of Cash Flow for the thirteen week periods ended May 28, 2011 and May 29, 2010, and (iv) Notes to Condensed Consolidated Financial Statements tagged as block text.*
 
 
*
Furnished, not filed.

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SIGNATURES

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

Date: October 5, 2011   RITE AID CORPORATION

 
 
By:
 
/s/ MARC A. STRASSLER
 Marc A. Strassler
 Executive Vice President and General Counsel

Date: October 5, 2011
 
By:
 
/s/ FRANK G. VITRANO
 Frank G. Vitrano
 Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer

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