Item
2.02. Results of Operations
and Financial Condition.
On June 25, 2020, Rite
Aid Corporation (the “Company”) reported its financial position and results of operations as of and for the thirteen
week period ended May 30, 2020. The press release includes the non-GAAP financial measures, “Adjusted EBITDA,” “Adjusted
Net Income (Loss)” and “Adjusted Net Income (Loss) per Diluted Share.” The Company uses these non-GAAP measures
in assessing its performance in addition to net income, the most directly comparable GAAP financial measure. Reconciliations of
Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share to net income (loss) and net income
(loss) per diluted share, the most directly comparable GAAP financial measures, are included in the press release, which is furnished
as Exhibit 99.1 hereto.
The Company believes
Adjusted EBITDA serves as an appropriate measure in evaluating the performance of its business and helps its investors better compare
the Company’s operating performance with its competitors. The Company defines 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, goodwill and intangible asset impairment charges, inventory write-downs related to store closings, gains
or losses on debt retirements, the Walgreens Boot Alliance, Inc. (“WBA”) merger termination fee, and other items (including
stock-based compensation expense, merger and acquisition-related costs, a non-recurring litigation settlement, severance, restructuring
related costs and costs related to facility closures and gain or loss on sale of assets). The current calculation of Adjusted EBITDA
reflects a modification made in the second quarter of fiscal 2019 to eliminate the add back of revenue deferrals related to our
customer loyalty program and to present amounts previously included within other as separate reconciling items. The Company references
this non-GAAP financial measure frequently in its decision-making because it provides supplemental information that facilitates
internal comparisons to historical periods and external comparisons to competitors. In addition, incentive compensation is based
in part on Adjusted EBITDA and the Company bases certain of its forward-looking estimates and budgets on Adjusted EBITDA.
The Company defines
Adjusted Net Income (Loss) as net income (loss) excluding amortization expense, merger and acquisition-related costs, a non-recurring
litigation settlement, gains or losses on debt retirements, LIFO adjustments, goodwill and intangible asset impairment charges,
restructuring related costs and the WBA merger termination fee. The current calculations of Adjusted Net Income (Loss) and Adjusted
Net Income (Loss) per Diluted Share reflect a modification made in the second quarter of fiscal 2019 to add back all amortization
expenses rather than the amortization of EnvisionRx intangible assets only. The Company calculates Adjusted Net Income (Loss) per
Diluted Share using the Company’s above-referenced definition of Adjusted Net Income (Loss). The Company believes Adjusted
Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share serve as appropriate measures to be used in evaluating the performance
of its business and help its investors better compare the Company’s operating performance over multiple periods.
In addition, the add
back of LIFO (credit) charge when calculating Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted
Share removes the entire impact of LIFO (credits) charges, and effectively reflects Rite Aid’s results as if the Company
was on a FIFO inventory basis.
Adjusted EBITDA,
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share should not be considered in isolation from, and
are not intended to represent alternative measures of, operating results or of cash flows from operating activities, as
determined in accordance with GAAP. The Company’s definitions of Adjusted EBITDA, Adjusted Net Income (Loss) and
Adjusted Net Income (Loss) per Diluted Share may not be comparable to similarly titled measurements reported by other
companies or similar terms in the Company’s debt facilities.
In addition, a copy
of the Company’s Earnings Release Supplement for the first quarter of fiscal 2021 is being furnished as Exhibit 99.2 to this
Form 8-K.
The information (including
Exhibits 99.1 and 99.2) being furnished pursuant to this “Item 2.02. Results of Operations and Financial Condition”
shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act regardless of any general
incorporation language in such filing.
Cautionary Statement Regarding Forward-Looking
Statements
Certain
statements made herein (including Exhibits 99.1 and 99.2) that are not historical, are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, but
are not limited to, statements regarding the Company’s ability to generate positive free cash flows in fiscal 2021; the
impact of the recent global coronavirus (“COVID-19”) pandemic on the Company’s business; and any assumptions underlying any of the
foregoing. Words such as "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intend," "may," "plan," "predict," "project," "should,"
and "will" and variations of such words and similar expressions are intended to identify such forward-looking
statements.
These
forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties,
including, but not limited to: the impact of COVID-19 on the Company’s workforce, operations, stores, expenses, and
supply chain, and the operations of the Company’s customers, suppliers and business partners; the Company’s
ability to successfully implement its new business strategy (including any delays and adjustments as a result of COVID-19)
and improve the operating performance of its stores; the Company’s ability to complete the exchange offer; the
Company’s high level of indebtedness and its ability to satisfy its obligations and the other covenants contained in
its debt agreements; general competitive, economic, industry, market, political (including healthcare reform), and regulatory
conditions, as well as factors specific to the markets in which the Company operates; the impact of private and public
third-party payers continued reduction in prescription drug reimbursements and efforts to encourage mail order; the
Company’s ability to manage expenses and its investments in working capital; the Company’s ability to achieve the
benefits of its efforts to reduce the costs of its generic and other drugs; outcomes of legal and regulatory matters; the
Company’s ability to partner and have relationships with health plans and health systems; and the continued integration
of the Company’s new senior management team and its ability to realize the benefits from its organizational
restructuring.
These and other
risks, assumptions and uncertainties are more fully described in Item 1A (Risk Factors) of the Company’s most recent Annual
Report on Form 10-K (the “Annual Report”) and in other documents that the Company files or furnishes with the Securities
and Exchange Commission, which you are encouraged to read. To the extent that COVID-19 adversely affects the Company’s business
and financial results, it may also have the effect of heightening many of the risk factors described in its Annual Report.
Should
one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may
vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of the date they are made. The degree to
which COVID-19 may adversely affect the Company’s results and operations will depend on numerous evolving factors and
future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its
severity, the actions to contain the virus or treat its impact (including travel bans and restrictions, quarantines,
shelter-in-place orders and shutdowns), and how quickly and to what extent normal economic and operating conditions can
resume. As a result, the impact on the Company’s financial and operating results cannot be reasonably estimated with
specificity at this time, but the impact could be material. The Company undertakes no obligation to update such statements to
reflect events or circumstances arising after such date, and cautions investors not to place undue reliance on any such
forward-looking statements. These forward-looking statements should not be relied upon as representing the Company’s
assessments as of any date subsequent to the date of this communication.