QUESTION:SUPPORTING FINANCIAL STATEMENTS:

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2. Read at the attached long-term debt note disclosure from Rite Aid's 2014 Annual Report (Rite Aid tends to use the term notes and bonds interchangeably). This note provides the detail for the long-term debt and current portion of long-term debt that is reported on the balance sheet. a. Look at the 10.25% senior notes due October 2019. What is the market rate of interest for these bonds? Look at the 9.25% senior notes due March 2020. What is the market rate of interest for these bonds? (hint: recreate the amortization schedule from this information and solve backwards). b. In 2014, Rite Aid issued the 6.75% senior notes due June 2021 and used the proceeds to pay off the 9.5% senior notes due June 2017. Why would Rite Aid choose to do this? c. Look at the 8.5% convertible notes due May 2015. What are convertible notes (bonds)? Were these convertible notes issued at a premium, discount or par value? How do you know? RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended March 1, 2014, March 2, 2013 and March 3, 2012 (In thousands, except per share amounts) 11. Indebtedness and Credit Agreement Following is a suinmary of indebtedness and lease financing obligations at March 1, 2014 and March 2, 2013: 2014 2013 Secured Debt: Senior secured revolving credit facility due February 2018. $ 400,000 $ 665,000 Tranche 6 Term Loan due February 2020 1,152,293 1,161,000 8.00% senior secured notes (senior lien) due August 2020 650,000 650,000 7.5% senior secured notes (second lien) due March 2017 500,000 Tranche 1 Term Loan (second lien) due August 2020. 470,000 470,000 Tranche 2 Term Loan (second lien) due June 2021 500,000 10.25% senior secured notes (second lien) due October 2019 ($270,000 face value less unamortized discount of $1,160 and $1,364). 268,840 268.636 Other secured 5,324 5,298 3,446,457 3,719,934 Guaranteed Unsecured Debt: 9.5% senior notes due June 2017 ($810,000 face value less unamortized discount of $5,529) 804,471 6.75% senior notes due June 2021 810,000 9.25% senior notes due March 2020 ($902,000 face value plus unamortized premium of $4,087 and $4,759). 906,087 906,759 1,716,087 1,711,230 Unguaranteed Unsecured Debt: 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 128,000 128.000 487,188 487,188 Lease financing obligations ... 107,411 115,179 Total debt ... 5,757,143 6,033,531 Current maturities of long-term debt and lease financing obligations. (49,174) (37,311) Long-term debt and lease financing obligations, less current maturities ..... $5,707,969 $5,996,220 2. Read at the attached long-term debt note disclosure from Rite Aid's 2014 Annual Report (Rite Aid tends to use the term notes and bonds interchangeably). This note provides the detail for the long-term debt and current portion of long-term debt that is reported on the balance sheet. a. Look at the 10.25% senior notes due October 2019. What is the market rate of interest for these bonds? Look at the 9.25% senior notes due March 2020. What is the market rate of interest for these bonds? (hint: recreate the amortization schedule from this information and solve backwards). b. In 2014, Rite Aid issued the 6.75% senior notes due June 2021 and used the proceeds to pay off the 9.5% senior notes due June 2017. Why would Rite Aid choose to do this? c. Look at the 8.5% convertible notes due May 2015. What are convertible notes (bonds)? Were these convertible notes issued at a premium, discount or par value? How do you know? RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended March 1, 2014, March 2, 2013 and March 3, 2012 (In thousands, except per share amounts) 11. Indebtedness and Credit Agreement Following is a suinmary of indebtedness and lease financing obligations at March 1, 2014 and March 2, 2013: 2014 2013 Secured Debt: Senior secured revolving credit facility due February 2018. $ 400,000 $ 665,000 Tranche 6 Term Loan due February 2020 1,152,293 1,161,000 8.00% senior secured notes (senior lien) due August 2020 650,000 650,000 7.5% senior secured notes (second lien) due March 2017 500,000 Tranche 1 Term Loan (second lien) due August 2020. 470,000 470,000 Tranche 2 Term Loan (second lien) due June 2021 500,000 10.25% senior secured notes (second lien) due October 2019 ($270,000 face value less unamortized discount of $1,160 and $1,364). 268,840 268.636 Other secured 5,324 5,298 3,446,457 3,719,934 Guaranteed Unsecured Debt: 9.5% senior notes due June 2017 ($810,000 face value less unamortized discount of $5,529) 804,471 6.75% senior notes due June 2021 810,000 9.25% senior notes due March 2020 ($902,000 face value plus unamortized premium of $4,087 and $4,759). 906,087 906,759 1,716,087 1,711,230 Unguaranteed Unsecured Debt: 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 128,000 128.000 487,188 487,188 Lease financing obligations ... 107,411 115,179 Total debt ... 5,757,143 6,033,531 Current maturities of long-term debt and lease financing obligations. (49,174) (37,311) Long-term debt and lease financing obligations, less current maturities ..... $5,707,969 $5,996,220