Basis of Presentation and Significant Accounting Policies (Policies)

3 Months Ended

May 29, 2021

Basis of Presentation

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 week period ended May 29, 2021 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Rite Aid Corporation (“Rite Aid”) and Subsidiaries (together with Rite Aid, the “Company”) Fiscal 2021 10-K.

Revenue Recognition

Revenue Recognition

The following table disaggregates the Company’s revenue by major source in each segment for the thirteen week periods ended May 29, 2021 and May 30, 2020:

	May 29,		May 30,
	2021		2020
In thousands	(13 weeks)		(13 weeks)
Retail Pharmacy segment:
Pharmacy sales	$	2,997,044	$	2,625,544
Front-end sales		1,321,699		1,465,467
Other revenue		32,939		32,260
Total Retail Pharmacy segment		4,351,682		4,123,271
Pharmacy Services segment		1,872,282		1,977,246
Intersegment elimination		(62,979)		(73,141)
Total revenue	$	6,160,985	$	6,027,376

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

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

remaining portion of that six calendar month period and for the following six calendar months. There is also a similar “Silver” level with a lower threshold and benefit level. Prior to January 1, 2020, the wellness+ tiers were based on points accumulated for a full calendar year, and entitled such customers to wellness+ benefits for the remainder of that calendar year and also the next calendar year.

Points earned pursuant to the wellness+ program represent a performance obligation and the Company allocates revenue between the merchandise purchased and the wellness+ points based on the relative stand-alone selling price of each performance obligation. The relative value of the wellness+ points is initially deferred as a contract liability (included in other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the benefit period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into revenue. For the thirteen week period ended May 29, 2021, the Company recognized $1,613 of deferred contract liability into revenue. The Retail Pharmacy segment had accrued contract liabilities of $2,141 as of May 29, 2021, which is included in other current liabilities. The Retail Pharmacy segment had accrued contract liabilities of $3,754 as of February 27, 2021, which is included in other current liabilities.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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