-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JPdHNSSUwJSFtV9qHU2+fOZf78jwITGspWuPE5fM880lMci6akNhZqruGXBlefCI aDU4dn/mM9v+o/w1c53ydA== 0000950136-03-002509.txt : 20031007 0000950136-03-002509.hdr.sgml : 20031007 20031007163909 ACCESSION NUMBER: 0000950136-03-002509 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030830 FILED AS OF DATE: 20031007 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 231614034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0302 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05742 FILM NUMBER: 03931809 BUSINESS ADDRESS: STREET 1: 30 HUNTER LANE CITY: CAMP HILL OWN STATE: PA ZIP: 17011 BUSINESS PHONE: 7177612633 MAIL ADDRESS: STREET 1: PO BOX 3165 CITY: HARRISBURG STATE: PA ZIP: 17105 FORMER COMPANY: FORMER CONFORMED NAME: RACK RITE DISTRIBUTORS DATE OF NAME CHANGE: 19680510 FORMER COMPANY: FORMER CONFORMED NAME: LEHRMAN LOUIS & CO DATE OF NAME CHANGE: 19680510 10-Q 1 file001.htm FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For The Quarterly Period Ended August 30, 2003


	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)

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 No

Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The registrant had 516,010,629 shares of its $1.00 par value common stock outstanding as of September 26, 2003.

RITE AID CORPORATION

TABLE OF CONTENTS


		Page
	Cautionary Statement Regarding Forward Looking Statements		3
PART I FINANCIAL INFORMATION
ITEM 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of August 30, 2003 and March 1, 2003		4
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended August 30, 2003 and August 31, 2002		5
	Condensed Consolidated Statements of Operations for the Twenty-Six Week Periods Ended August 30, 2003 and August 31, 2002		6
	Condensed Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended August 30, 2003 and August 31, 2002		7
	Notes to Condensed Consolidated Financial Statements		8
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		18
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		25
ITEM 4.	Controls and Procedures		26
PART II OTHER INFORMATION
ITEM 1.	Legal Proceedings		27
ITEM 2.	Changes in Securities and Use of Proceeds		27
ITEM 3.	Defaults Upon Senior Securities		27
ITEM 4.	Submission of Matters to a Vote of Security Holders		27
ITEM 5.	Other Information		27
ITEM 6.	Exhibits and Reports on Form 8-K		28

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report 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;

•

our ability to improve the operating performance of our existing stores in accordance with our management's long term strategy;

•

our ability to hire and retain pharmacists and other store personnel;

•

the outcomes of pending lawsuits and governmental investigations;

•

competitive pricing pressures and continued consolidation of the drugstore industry; and

•

the efforts of third party payors to reduce prescription drug reimbursements, changes in state or federal legislation or regulations, the success of planned advertising and merchandising strategies, general economic conditions and inflation, interest rate movements, access to capital, and our relationships with our suppliers.

We undertake no obligation to revise the forward-looking statements included in this report to reflect any future events or circumstances. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview and Factors Affecting Our Future Prospects" included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2003 ("the Fiscal 2003 10-K"), which we filed with the Securities and Exchange Commission ("SEC") on May 2, 2003 and is available on the SEC's website at www.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(unaudited)


	August 30, 2003			March 1, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	259,931		$	365,321
Accounts receivable, net		637,159			575,518
Inventories, net		2,331,144			2,195,030
Prepaid expenses and other current assets		101,249			108,018
Total current assets		3,329,483			3,243,887
PROPERTY, PLANT AND EQUIPMENT, NET		1,909,756			1,868,579
GOODWILL		684,535			684,535
OTHER INTANGIBLES, NET		188,607			199,768
OTHER ASSETS		135,186			136,746
Total assets	$	6,247,567		$	6,133,515
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt and lease financing obligations	$	78,496		$	103,715
Accounts payable		863,501			755,284
Accrued salaries, wages and other current liabilities		696,536			707,999
Total current liabilities		1,638,533			1,566,998
CONVERTIBLE NOTES		245,250			244,500
LONG-TERM DEBT, LESS CURRENT MATURITIES		3,456,645			3,345,365
LEASE FINANCING OBLIGATIONS, LESS CURRENT MATURITIES		166,250			169,048
OTHER NONCURRENT LIABILITIES		863,283			900,270
Total liabilities		6,369,961			6,226,181
COMMITMENTS AND CONTINGENCIES		—			—
REDEEMABLE PREFERRED STOCK		19,714			19,663
STOCKHOLDERS' DEFICIT:
Preferred stock, par value $1 per share, liquidation value $100 per share		401,579			393,705
Common stock, par value $1 per share		515,515			515,115
Additional paid-in capital		3,136,446			3,119,619
Accumulated deficit		(4,167,539	)		(4,118,119	)
Stock-based and deferred compensation		—			5,369
Accumulated other comprehensive loss		(28,109	)		(28,018	)
Total stockholders' deficit		(142,108	)		(112,329	)
Total liabilities and stockholders' deficit	$	6,247,567		$	6,133,515

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)


	Thirteen Week Period Ended
	August 30, 2003			August 31, 2002
REVENUES	$	4,052,091		$	3,856,510
COSTS AND EXPENSES:
Cost of goods sold, including occupancy costs		3,087,860			2,958,690
Selling, general and administrative expenses		893,337			865,931
Stock-based compensation expense (benefit)		8,847			(6,746	)
Store closing and impairment (credits) charges		(8,994	)		58,223
Interest expense		79,409			84,955
Interest rate swap contracts		—			14
Loss (gain) on debt modifications and retirements, net		1,888			(1,392	)
Loss on sale of assets and investments, net		342			1,477
		4,062,689			3,961,152
Loss before income taxes		(10,598	)		(104,642	)
INCOME TAX EXPENSE		—			649
Net loss	$	(10,598	)	$	(105,291	)
COMPUTATION OF LOSS APPLICABLE TO COMMON STOCKHOLDERS
Net loss	$	(10,598	)	$	(105,291	)
Accretion of redeemable preferred stock		(26	)		(26	)
Cumulative preferred stock dividends		(7,874	)		(2,263	)
Net loss attributable to common stockholders	$	(18,498	)	$	(107,580	)
BASIC AND DILUTED LOSS PER SHARE
Net loss per share	$	(0.04	)	$	(0.21	)

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)


	Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002
REVENUES	$	8,098,259		$	7,780,241
COSTS AND EXPENSES:
Cost of goods sold, including occupancy costs		6,156,035			5,952,468
Selling, general and administrative expenses		1,783,070			1,765,074
Stock-based compensation expense		18,682			1,348
Store closing and impairment (credits) charges		(2,628	)		54,106
Interest expense		158,367			169,586
Interest rate swap contracts		—			278
Loss (gain) on debt modifications and retirements, net		35,315			(1,662	)
Gain on sale of assets and investments, net		(1,162	)		(15,388	)
		8,147,679			7,925,810
Loss before income taxes		(49,420	)		(145,569	)
INCOME TAX BENEFIT		—			(42,862	)
Net loss	$	(49,420	)	$	(102,707	)
COMPUTATION OF LOSS APPLICABLE TO COMMON STOCKHOLDERS
Net loss	$	(49,420	)	$	(102,707	)
Accretion of redeemable preferred stock		(52	)		(51	)
Cumulative preferred stock dividends		(7,874	)		(9,493	)
Net loss attributable to common stockholders	$	(57,346	)	$	(112,251	)
BASIC AND DILUTED LOSS PER SHARE
Net loss per share	$	(0.11	)	$	(0.22	)

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)


	Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002
OPERATING ACTIVITIES:
Net loss	$	(49,420	)	$	(102,707	)
Adjustments to reconcile to net cash used in operations:
Depreciation and amortization		130,672			147,326
Stock-based compensation expense		18,682			1,348
Store closing and impairment (credits) charges		(2,628	)		54,106
Loss (gain) on debt modifications and retirements, net		35,315			(1,662	)
Interest rate swap contracts market value adjustment		—			278
Gain on sale of assets and investments, net		(1,162	)		(15,388	)
Changes in income tax receivables and payables		—			(44,002	)
Changes in operating assets and liabilities		(192,656	)		(44,432	)
NET CASH USED IN OPERATING ACTIVITIES		(61,197	)		(5,133	)
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment		(158,493	)		(48,063	)
Intangible assets acquired		(7,608	)		(5,556	)
Proceeds from dispositions		14,436			25,582
NET CASH USED IN INVESTING ACTIVITIES		(151,665	)		(28,037	)
FINANCING ACTIVITIES:
Principal payments on long-term debt		(199,204	)		(26,528	)
Proceeds from issuance of new bank credit facilities		1,150,000			—
Principal payments on bank credit facilities		(1,372,500	)		(12,500	)
Change in zero balance cash accounts		55,940			(766	)
Proceeds from the issuance of bonds		502,950			—
Proceeds from issuance of stock		1,271			280
Deferred financing costs paid		(30,985	)		(491	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		107,472			(40,005	)
DECREASE IN CASH AND CASH EQUIVALENTS		(105,390	)		(73,175	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		365,321			344,055
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	259,931		$	270,880
SUPPLEMENTARY CASH FLOW DATA:
Cash paid for interest (net of capitalized amounts of $91 and $176, respectively)	$	132,313		$	170,864
Cash payments of income taxes, net	$	2,169		$	1,392
Equipment financed under capital leases	$	9,025		$	544

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen and Twenty-Six Week Periods Ended August 30, 2003 and August 31, 2002
(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 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 (consisting primarily of normal recurring adjustments except as described in these notes) which are, in the opinion of management, 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 30, 2003 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 consolidated financial statements and notes thereto included in the Company's Fiscal 2003 Annual Report on Form 10-K filed with the SEC.

Certain reclassifications have been made to prior period amounts to conform to current period classifications.

2. Recent Accounting Pronouncements

The Company has several stock option plans, which are described in detail in the Company's Form 10-K for the year ended March 1, 2003. Prior to fiscal 2004, the Company accounted for these plans under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Effective March 2, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation". Under the modified prospective method of adoption selected by the Company under the provisions of SFAS No. 148, "Accounting for Stock Based Compensation — Transition and Disclosure", compensation cost recognized in the twenty-six week period ended August 30, 2003 is the same as that which would have been recognized had the recognition provisions of SFAS No. 123 been applied from its original effective date. Results for prior years have not been restated. The following table illustrates the effect on net income and earnings per share if the fair value method had been applied to all outstanding and unvested awards in all periods presented:


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002			August 30, 2003			August 31, 2002
Net loss, as reported:	$	(10,598	)	$	(105,291	)	$	(49,420	)	$	(102,707	)
Add: Stock based compensation expense (benefit) included in reported net loss		8,715			(8,923	)		18,256			(2,992	)
Deduct: Total stock based compensation determined under the fair value method for all awards		(8,715	)		(8,455	)		(18,256	)		(16,858	)
Pro forma net loss	$	(10,598	)	$	(122,669	)	$	(49,420	)	$	(122,557	)
Loss per share:
Basic and diluted – as reported	$	(0.04	)	$	(0.21	)	$	(0.11	)	$	(0.22	)
Basic and diluted – pro forma	$	(0.04	)	$	(0.24	)	$	(0.11	)	$	(0.24	)

The Company also provides restricted stock grants and the expense for these grants is included in the operating statement line "stock-based compensation expense", but is excluded from the above table.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." This Statement requires that certain instruments that were previously classified as equity on a company's statement of financial position now be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Upon adoption in the third quarter of fiscal 2004, the Company's redeemable preferred stock will be classified as a liability on the balance sheet.

In January of 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 requires the consolidation of entities that cannot finance their activities without the support of other parties and that lack certain characteristics of a controlling interest, such as the ability to make decisions about the entity's activities via voting rights or similar rights. The entity that consolidates the variable interest entity is the primary beneficiary of the entity's activities. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and must be applied in the first period beginning after June 15, 2003 for entities in which an enterprise holds a variable interest entity that it acquired before February 1, 2003. The adoption will not have any impact on the Company's financial position or results of operations.

3. Loss Per Share

Following is a summary of the components of the numerator and denominator of the basic and diluted loss per share computation:


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002			August 30, 2003			August 31, 2002
Numerator for earnings per share:
Net loss	$	(10,598	)	$	(105,291	)	$	(49,420	)	$	(102,707	)
Accretion of redeemable preferred stock		(26	)		(26	)		(52	)		(51	)
Cumulative preferred stock dividends		(7,874	)		(2,263	)		(7,874	)		(9,493	)
Net loss attributable to common stockholders	$	(18,498	)	$	(107,580	)	$	(57,346	)	$	(112,251	)
Denominator:
Basic weighted average shares		515,402			515,158			515,227			515,139
Diluted weighted average share		515,402			515,158			515,227			515,139
Basic and diluted loss per share:
Net loss per share	$	(0.04	)	$	(0.21	)	$	(0.11	)	$	(0.22	)

No potential shares of common stock have been included in the computation of diluted earnings per share as the Company incurred losses attributable to common shareholders for the thirteen and twenty-six week periods ended August 30, 2003 and August 31, 2002, and the amount would be antidilutive. At August 30, 2003, an aggregate of 175,432 potential common shares related to stock options, convertible notes and preferred stock have been excluded from the computation of diluted earnings per share. At August 31, 2002, an aggregate of 172,058 potential common shares related to stock options, convertible notes and preferred stock and warrants have been excluded from the computation of diluted earnings per share.

4. Store Closing and Impairment Charges

Store closing and impairment charges (credits) consist of:


	Thirteen Week Period Ended					Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002		August 30, 2003			August 31, 2002
Impairment charges	$	1,186		$	5,548	$	2,017		$	6,408
Store and equipment lease exit charges (credits)		(10,180	)		52,675		(4,645	)		47,698
	$	(8,994	)	$	58,223	$	(2,628	)	$	54,106

Impairment charges

Impairment charges include non-cash charges of $1,186 and $5,548 for the thirteen week periods ended August 30, 2003 and August 31, 2002, respectively, for the impairment of long-lived assets at 14 and 41 stores, respectively. Impairment charges include non-cash charges of $2,017 and $6,408 for the twenty-six week periods ended August 30, 2003 and August 31, 2002, respectively, for the impairment of long-lived assets at 25 and 54 stores, respectively. These amounts include the write-down of long-lived assets at stores that were assessed for impairment because of management's intention to relocate or close the store or because of changes in circumstances that indicate the carrying value of the asset may not be recoverable.

Store and equipment lease exit charges (credits)

During the thirteen week periods ended August 30, 2003 and August 31, 2002, the Company recorded charges for 1 and 32 stores, respectively, to be closed or relocated under long-term leases. During the twenty-six week periods ended August 30, 2003 and August 31, 2002, the Company recorded charges for 2 and 32 stores, respectively, to be closed or relocated under long-term leases. Through December 31, 2002, costs incurred to close a store, which principally include lease termination costs, were recorded at the time management committed to closing the store, which is the date the closure was formally approved by senior management, or in the case of a store to be relocated, the date the new property was leased or purchased. Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Pursuant to the adoption of SFAS No. 146, the Company now records costs to close the store at the time the store is closed and all inventory is liquidated. The Company calculates its liability for closed stores on a store-by-store basis. The calculation includes 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. This liability is discounted using a risk-free rate of interest. The Company evaluates these assumptions each quarter and adjusts the liability accordingly. The Company recorded a net closed store credit of $10,180 in the thirteen week period ended August 30, 2003, due to adjustments to the risk-free rate of interest on the provision. The effect of closure decisions and changes in the risk-free rate of interest during the thirteen week period ended August 31, 2002 resulted in a net closed store expense of $52,675. The Company recorded a net closed store credit of $4,645 in the twenty-six week period ended August 30, 2003, due to adjustments to the risk-free rate of interest on the provision. The effect of closure decisions and changes in the risk-free rate of interest during the twenty-six week period ended August 31, 2002 resulted in a net closed store expense of $47,698.

The reserve for store and equipment lease exit costs includes the following activity:


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002			August 30, 2003			August 31, 2002
Balance — beginning of period	$	297,135		$	272,195		$	306,485		$	287,464
Provision for present value of noncancellable lease payments of store closings		996			36,198			901			37,291
Changes in assumptions about future sublease income, terminations and changes in interest rates		(13,026	)		16,572			(9,422	)		11,142
Reversals of reserves for stores that management has determined will remain open		—			(95	)		—			(735	)
Interest accretion		1,848			2,645			3,875			5,102
Cash payments, net of sublease income		(11,256	)		(13,999	)		(26,142	)		(26,748	)
Balance — end of period	$	275,697		$	313,516		$	275,697		$	313,516

The Company's revenues and loss from operations for the thirteen and twenty-six week periods ended August 30, 2003 and August 31, 2002 include results from stores that have been closed as of August 30, 2003. The revenue and operating losses of these stores for the periods are presented as follows:


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002			August 30, 2003			August 31, 2002
Revenues	$	21,442		$	55,427		$	50,138		$	128,683
Loss from operations		(3,389	)		(5,992	)		(4,298	)		(21,001	)

Included in loss from operations for the thirteen weeks ended August 30, 2003 and August 31, 2002, are depreciation and amortization charges of $125 and $754 and closed store liquidation charges of $2,246 and $528, respectively. Included in loss from operations for the twenty-six weeks ended August 30, 2003 and August 31, 2002, are depreciation and amortization charges of $369 and $1,539 and closed store liquidation charges of $3,229 and $8,221, respectively. 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.

5. Goodwill and Other Intangibles

The Company evaluates goodwill for impairment on an annual basis, pursuant to the provisions of SFAS No. 142, "Goodwill and Other Intangibles". Intangible assets other than goodwill are finite-lived and amortized over their useful lives. Following is a summary of the Company's amortizable intangible assets as of August 30, 2003 and March 1, 2003.


	August 30, 2003					March 1, 2003
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Favorable leases and other	$	305,345	$	(173,726	)	$	303,334	$	(167,544	)
Prescription files		351,325		(294,337	)		347,182		(283,204	)
Total	$	656,670	$	(468,063	)	$	650,516	$	(450,748	)

Amortization expense for these intangible assets was $8,840 and $18,255 for the thirteen and twenty-six weeks ended August 30, 2003. The anticipated annual amortization expense for these intangible assets is $33,766, $18,324, $14,516, $16,469 and $14,465 in fiscal 2004, 2005, 2006, 2007 and 2008, respectively.

6. Sale of Investments

On April 29, 2002 and May 6, 2002, the Company sold shares of drugstore.com. As a result of these transactions, the Company no longer has an equity investment in drugstore.com. These sales resulted in a gain of $15,777, which is included in the $15,388 gain on sale of assets and investments, net, for the twenty-six week period ended August 31, 2002.

7. Income Taxes

The income tax benefits of the operating loss generated in the thirteen and twenty-six week periods ended August 30, 2003 and August 31, 2002 have been fully offset by a valuation allowance as a result of the Company's determination that, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.

The tax benefit of $42,862 for the twenty-six week period ended August 31, 2002 is primarily related to the federal tax law change, enacted on March 9, 2002, which increased the carryback period of net operating losses incurred in fiscal 2001 and 2002 from two years to five.

The Company has undergone an ownership change for statutory purposes during fiscal 2002, which resulted in a limitation on the future use of net operating loss carryforwards. The Company believes that this limitation does not further impair the net operating loss carryforwards because they are fully reserved.

8. Indebtedness and Credit Agreements

General

Following is a summary of indebtedness and lease financing obligations at August 30, 2003 and March 1, 2003:


	August 30, 2003		March 1, 2003
Secured Debt:
Senior secured credit facility due April 2008	$	1,150,000	$	—
Senior secured credit facility due March 2005		—		1,372,500
12.5% senior secured notes due September 2006 ($142,025 and $152,025 face value less unamortized discount of $4,938 and $6,143, respectively)		137,087		145,882


	August 30, 2003			March 1, 2003
8.125% senior secured notes due May 2010 ($360,000 face value less unamortized discount of $4,501)		355,499			—
9.5% senior secured notes due February 2011		300,000			300,000
Other		5,979			6,540
		1,948,565			1,824,922

Lease Financing Obligations		181,148			176,186

Unsecured Debt:
6.0% dealer remarketable securities due October 2003		58,125			58,125
7.625% senior notes due April 2005		198,000			198,000
6.0% fixed-rate senior notes due December 2005		38,047			75,895
4.75% convertible notes due December 2006 ($250,000 face value less unamortized discount of $4,750 and $5,500)		245,250			244,500
7.125% notes due January 2007		210,074			335,000
11.25% senior notes due July 2008		150,000			150,000
6.125% fixed-rate senior notes due December 2008		150,000			150,000
6.875% senior debentures due August 2013		184,773			200,000
9.25% senior notes due June 2013 ($150,000 face value less unamortized discount of $2,341)		147,659			—
7.7% notes due February 2027		295,000			300,000
6.875% fixed-rate senior notes due December 2028		140,000			150,000
		1,816,928			1,861,520
Total debt		3,946,641			3,862,628

Short-term debt and current maturities of long-term debt and lease financing obligations		(78,496	)		(103,715	)

Long-term debt and lease financing obligations, less current maturities	$	3,868,145		$	3,758,913

New Credit Facility

On May 28, 2003, the Company replaced its senior secured credit facility with a new senior secured credit facility. The new facility consists of a $1,150,000 term loan and a $700,000 revolving credit facility, and will mature on April 30, 2008. The proceeds of the loans made on the closing date of the new credit facility were used, among other things, to repay the outstanding amounts under the old facility and to purchase the land and buildings at the Company's Perryman, MD and Lancaster, CA distribution centers, which had previously been leased through a synthetic lease arrangement. The purchase price of these assets was $106,850. On August 4, 2003 we amended and restated the senior secured credit facility, which reduced the interest rate on term loan borrowings under the senior secured credit facility by 0.50%.

Borrowings under the new facility currently bear interest either at LIBOR plus 3.00% for the term loan and 3.50% for the revolving credit facility, if the Company chooses to make LIBOR borrowings, or at Citibank's base rate plus 2.00% for the term loan and 2.50% for the revolving credit facility. The

Company is required to pay fees of 0.50% per annum on the daily unused amount of the revolving facility. Amortization payments of $2,875 related to the term loan began on May 31, 2004, and continue on a quarterly basis until February 28, 2008, with a final payment of $1,104,000 due April 30, 2008.

Substantially all of Rite Aid Corporation's wholly owned subsidiaries guarantee the obligations under the new senior secured credit facility. The subsidiary guarantees are secured by a first priority lien on, among other things, the inventory, accounts receivable 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 under the new senior secured credit facility. Rite Aid Corporation's direct obligations under the new senior secured credit facility are unsecured.

The new senior secured credit facility allows for the issuance of up to $150,000 in additional term loans or additional revolver availability. Rite Aid may request the additional loans at any time prior to the maturity of the senior secured credit facility, provided the Company is not in default of any terms of the facility, nor is in violation of any financial covenants. The new senior secured credit facility allows the Company to have outstanding, at any time, up to $1,000,000 in secured debt in addition to the senior secured credit facility. Accordingly, at August 30, 2003, the remaining additional permitted secured debt under the new senior credit facility is $197,975. The Company may issue unsecured debt with no restrictions on terms. Any such debt issued reduces the amount available for secured debt. The Company also has the ability to incur an unlimited amount of unsecured debt, if the terms of such unsecured indebtedness comply with certain terms set forth in the credit agreement and subject to the Company's compliance with certain financial covenants. The new senior secured credit facility also allows for the repurchase of any debt with a maturity prior to April 30, 2008, and for a limited amount of debt with a maturity after April 30, 2008, based upon outstanding borrowings under the revolving credit facility and available cash at the time of the repurchase.

The new senior secured credit facility contains customary covenants, which place restrictions on the incurrence of debt, the payment of dividends, mergers, liens and sale and leaseback transactions. The new senior secured credit facility also requires the Company to meet various financial ratios and limits capital expenditures. For the twelve months ending August 30, 2003 through the twelve months ending February 28, 2004, the covenants require the Company to maintain a maximum leverage ratio of 6.65:1. Subsequent to February 28, 2004, the ratio gradually decreases to 3.8:1 for the twelve months ending March 1, 2008. The Company must also maintain a minimum interest coverage ratio of 1.9:1 for the twelve months ended August 30, 2003 through the twelve months ending February 28, 2004. Subsequent to February 28, 2004, the ratio gradually increases to 3.25:1 for the twelve months ending March 1, 2008. In addition, the Company must maintain a minimum fixed charge ratio of 1.05:1 for the twelve months ending August 30, 2003 through the twelve months ending February 28, 2004. Subsequent to February 28, 2004, the ratio gradually increases to 1.25:1 for the twelve months ending March 1, 2008. Capital expenditures are limited to $250,000 for the fiscal year ending February 28, 2004, with the allowable amount increasing in subsequent years.

The new senior secured credit facility provides for customary events of default, including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of the Company's debt to accelerate the maturity of debt having a principal amount in excess of $25,000.

The Company's ability to borrow under the new senior secured credit facility is based on a specified borrowing base consisting of eligible accounts receivable, inventory and prescription files. At August 30, 2003, the term loan was fully drawn and the Company had no outstanding draws on the revolving credit facility. At August 30, 2003, the Company had letters of credit outstanding against the revolving credit facility of $104,779.

As a result of the placement of the new senior secured credit facility, the Company recorded a loss on debt modification in the twenty-six weeks ended August 30, 2003 of $43,197 (which included the write-off of previously deferred debt issue costs of $35,120).

Other Transactions

In May 2003, the Company issued $150,000 aggregate principal amount of 9.25% senior notes due 2013. These notes are unsecured and effectively subordinate to the secured debt of the Company. The indenture governing the 9.25% senior notes contains customary covenant provisions that, among other things, include limitations on the Company's ability to pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enter into sale lease-back transactions.

In April 2003, the Company issued $360,000 aggregate principal amount of 8.125% senior secured notes due 2010. The notes are unsecured, unsubordinated obligations to Rite Aid Corporation and rank equally in right of payment with all other unsecured, unsubordinated indebtedness. The obligations under the notes are guaranteed, subject to certain limitations, by subsidiaries that guarantee the obligations under the Company's new senior secured credit facility. The guarantees are secured, subject to permitted liens, by shared second priority liens, with the holders of the Company's 12.5% senior secured notes and the Company's 9.5% senior secured notes, granted by subsidiary guarantors on all of their assets that secure the obligations under the new senior credit facility, subject to certain exceptions. The indenture governing the 8.125% senior secured notes contains customary covenant provisions that, among other things, include limitations on the Company's ability to pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enter into sale lease-back transactions.

During the twenty-six week period ended August 30, 2003, the Company made open market purchases of the following securities:


Debt Redeemed	Principal Amount Redeemed		Amount Paid		Gain/ (loss)
6.0% fixed-rate senior notes due 2005	$	37,848	$	36,853	$	865
7.125% notes due 2007		124,926		120,216		4,314
6.875% senior debentures due 2013		15,227		13,144		1,981
7.7% notes due 2027		5,000		4,219		715
6.875% fixed-rate senior notes due 2028		10,000		7,975		1,895
12.5% senior secured notes due 2006		10,000		11,275		(1,888	)
Total	$	203,001	$	193,682	$	7,882

The net gain on the transactions listed above is recorded in the line item "Loss (gain) on debt modifications and retirements, net" in the accompanying statement of operations for the twenty-six week period ended August 30, 2003.

During the thirteen and twenty-six week periods ended August 31, 2002, the Company redeemed $20,925 and $25,425 of its 6.0% dealer remarketable securities due 2003 for $19,533 and $23,763, respectively. The early redemption resulted in a gain on debt modification of $1,392 and $1,662 for the thirteen and twenty-six week periods ended August 31, 2002, respectively.

On October 1, 2003, the Company paid, at maturity, its remaining outstanding balance on the 6.0% dealer remarketable securities.

Other

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2004 and the succeeding four fiscal years are as follows: 2004-$58,522, 2005-$11,217, 2006-$250,860, 2007-$604,667, 2008-$12,178, and $2,828,050 in 2009 and thereafter.

Substantially all of Rite Aid Corporation's wholly-owned subsidiaries guarantee the obligations under the new senior secured credit facility. These subsidiary guarantees are secured by a first priority lien on the inventory, accounts receivable and prescription files. Rite Aid Corporation is a holding company with no direct operations and is dependent upon dividends and other payments from its subsidiaries to service payments due under the new senior credit facility. Rite Aid Corporation's direct obligations under the new senior credit facility are unsecured. The 12.5% senior secured notes due 2006, the 8.125% senior secured notes due 2010 and the 9.5% senior secured notes due 2011 are guaranteed by substantially all of the Company's wholly-owned subsidiaries that guarantee the new senior secured credit facility and the Company's obligations under such notes are secured on a second priority basis by the same collateral as the new senior secured credit facility.

The subsidiary guarantees related to the Company's new senior secured credit facility and second priority bond issuances are full and unconditional and joint and several. Also, the parent company's assets and operations are not material and subsidiaries not guaranteeing the new senior secured credit facility and bond issuances are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not presented.

9. Commitments and Contingencies

Federal Investigation

There are currently pending federal governmental investigations, both civil and criminal, by the United States Attorney, involving various matters related to prior management's business practices. The Company is cooperating fully with the United States Attorney. The Company has begun settlement discussions with the United States Attorney of the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceedings against us if the Company enters into a consent judgment providing for a civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on the Company's financial condition and results of operations. The Company recorded an accrual of $20,000 in the thirteen weeks ended June 1, 2002 in connection with the resolution for these matters; however, the Company may incur charges in excess of that amount and the Company is unable to estimate the possible range of loss. Management will continue to evaluate the estimate and, to the extent that additional information arises or the Company's strategy changes, the Company will adjust the accrual accordingly. These investigations and settlement discussions are ongoing, and the Company cannot predict their outcomes. If the Company were convicted of any crime, certain licenses and government contracts such as Medicaid plan reimbursement agreements that are material to the Company's operations may be revoked, which would have a material adverse effect on the Company's results of operations, financial condition or cash flows. In addition, substantial penalties, damages or other monetary remedies assessed against the Company, including a settlement, could also have a material adverse effect on the Company's results of operations, financial condition or cash flows.

Stockholder Litigation

The Company's settlement of the consolidated securities class action lawsuits brought on behalf of securityholders who purchased its securities on the open market between May 2, 1997 and

November 10, 1999 (and based on the allegation that the Company's financial statements for fiscal 1997, fiscal 1998 and fiscal 1999 fraudulently misrepresented its financial position and results of operations for these periods) was approved by the United States District Court for the Eastern District of Pennsylvania by Order entered August 16, 2001. Although that Order was appealed by certain non-settling defendants (including the Company's former auditor, KPMG, the Company's former chief executive officer, Martin Grass, and the Company's former chief financial officer, Frank Bergonzi), those non-settling defendants have now also settled with plaintiffs, which settlement received final approval by the District Court on June 2, 2003. On June 9, 2003 all parties to the appeal filed a stipulation of dismissal of the appeal. In accordance with the agreement settling plaintiffs' claims against the Company, in April 2002, the Company issued $149,500 of senior secured (shareholder) notes (subsequently redeemed in February 2003) and paid $45,000 in cash, which was fully funded by the Company's officers' and directors' liability insurance. Several members of the class have elected to "opt-out" of the class and, as a result, they will be free to pursue their claims. Management believes that their claims, individually and in the aggregate, are not material.

Reimbursement Matters

The Company is being investigated by multiple state attorneys general for its reimbursement practices relating to partially filled prescriptions and fully filled prescriptions that are not picked up by ordering customers. The Company supplied similar information with respect to these matters to the United States Department of Justice. The Company believes that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. The Company also believes that its existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. An individual acting on behalf of the United States of America has filed a lawsuit in the United States District Court of the Eastern District of Pennsylvania under the Federal False Claims Act alleging that the Company defrauded federal healthcare plans by failing to appropriately issue refunds for partially filled prescriptions, which were not picked up by customers. The United States Department of Justice has intervened in this lawsuit, as is its right under the law. The Company has reached an agreement to settle the State and Department of Justice investigations and the lawsuit filed by the private individual for $7,225, which is subject to court approval. The Company has accrued $7,225 related to this matter.

Other

The Company, together with a significant number of major U.S. retailers, has been sued by the Lemelson Foundation in a complaint which alleges that portions of the technology included in the Company's point-of-sale system infringe upon a patent held by the plaintiffs. The amount of damages sought is unspecified, and may be material. Management cannot predict the outcome of this litigation or whether it could result in a material adverse effect on the Company's results of operations, financial conditions or cash flows.

The Company is subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of the Company's management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on the Company's financial condition, results of operations or cash flows if decided adversely.

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

Overview

Net loss for the thirteen and twenty-six week periods ended August 30, 2003 was $10.6 million and $49.4 million, respectively. Net loss for the thirteen and twenty-six week periods ended August 31, 2002 was $105.3 million and $102.7 million, respectively. The improvements in operating performance in the thirteen and twenty-six week periods ended August 30, 2003 were driven by improvements in revenues, gross margin, selling, general and administrative expenses ("SG&A") as a percent of sales, reduced store closing and impairment expense and reduced interest expense. The factors that drove these improvements are described in further detail in the Results of Operations section below. Other items that had significant impact on our results of operations are as follows:

Stock-Based Compensation Expense. We recorded stock based compensation expense (benefit) of $8.8 million and $(6.7) million in the thirteen week periods ended August 30, 2003 and August 31, 2002, respectively and $18.7 million and $1.3 million in the twenty-six week periods ended August 30, 2003 and August 31, 2002, respectively. The expense recorded in the thirteen and twenty-six week periods ended August 30, 2003 resulted from the application of the fair value method of accounting for stock-based compensation expense, which we adopted as of the beginning of fiscal 2004. Under the fair value method, assuming no new grants during the remainder of the year, we expect expense for the remainder of fiscal 2004 to be approximately $10.5 million. The expenses (benefits) recorded in the thirteen and twenty-six week periods ended August 31, 2002 resulted primarily from the impact of applying variable plan accounting to several of our stock-based compensation plans and the vesting of restricted stock grants in the prior year.

Loss on Debt Modifications and Retirements. During the thirteen and twenty-six week periods ended August 30, 2003, we recorded a loss on debt modifications and retirements of $1.9 million and $35.3 million, respectively. The loss for the twenty-six week period ended August 30, 2003 included a loss of $43.2 million related to the termination of the old senior secured credit facility and the issuance of the new senior secured credit facility, offset by net gains of $7.9 million related to several debt instruments that were retired in the twenty-six week period ended August 30, 2003. These transactions are described in more detail in the Liquidity and Capital Resources section below.

Income Tax Benefit. In the twenty-six week period ended August 31, 2002, we recorded a $42.9 million income tax benefit. The benefit resulted primarily from a federal law change, enacted on March 9, 2002, which increased the carryback period of net operating losses incurred in fiscal 2001 and 2002 from two years to five.

Investigation Expenses. We continue to incur expenses in connection with litigation related to prior management's business practices and the defense of prior management. We incurred $2.6 million and $3.2 million in the thirteen week periods ended August 30, 2003 and August 31, 2002, respectively, and $8.6 million and $9.9 million in the twenty-six week periods ended August 30, 2003 and August 31, 2002, respectively. We expect to incur an additional $6.5 million in the remainder of fiscal 2004, and expect to continue to incur significant legal and other expenses until the resolution of the U.S. Attorney's case against certain of our former executive officers and the investigations of prior management's business practices.

Gain on Sale of Assets and Investments: In the twenty-six week period ended August 31, 2002, we recorded a gain of $15.8 million resulting from the sale of our investment in drugstore.com.

Results Of Operations

Revenues and Other Operating Data


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002			August 30, 2003			August 31, 2002
	(dollars in thousands)
Revenues	$	4,052,091		$	3,856,510		$	8,098,259		$	7,780,241
Revenue growth		5.1	%		4.5	%		4.1	%		5.1	%
Same store sales growth		5.9	%		7.1	%		5.0	%		7.7	%
Pharmacy sales growth		6.1	%		8.2	%		5.3	%		8.7	%
Same store pharmacy sales growth		6.8	%		10.8	%		6.2	%		11.3	%
Pharmacy sales as a % of total sales		63.8	%		63.1	%		64.1	%		63.3	%
Third party sales as a % of total pharmacy sales		93.2	%		92.6	%		93.2	%		92.6	%
Front-end sales growth (decline)		3.2	%		(1.1	)%		1.9	%		(0.4	)%
Same store front end sales growth		4.3	%		1.3	%		3.1	%		2.0	%
Front end sales as a % of total sales		36.2	%		36.9	%		35.9	%		36.7	%
Store data:
Total stores (beginning of period)		3,396			3,454			3,404			3,497
New stores		1			—			1			1
Closed stores		(11	)		(10	)		(19	)		(55	)
Store acquisitions, net		—			—			—			1
Total stores (end of period)		3,386			3,444			3,386			3,444
Relocated stores		1			3			2			7

Revenues

The 5.1% and 4.1% growth in revenues for the thirteen and twenty-six week periods ended August 30, 2003 were driven by pharmacy sales growth of 6.1% and 5.3%, respectively, and front end sales growth of 3.2% and 1.9%, respectively. The 4.5% and 5.1% growth in revenues for the thirteen and twenty-six week periods ended August 31, 2002 were driven by pharmacy sales growth of 8.2% and 8.7%, respectively, offset slightly by front end sales declines of 1.1% and 0.4%, respectively.

Pharmacy same store sales increased by 6.8% and 6.2% for the thirteen and twenty-six week periods ended August 30, 2003, respectively, due primarily to inflation and favorable industry trends. These trends include an aging population, the use of pharmaceuticals to treat a growing number of healthcare problems and the introduction of a number of successful new prescription drugs. These favorable factors were partially offset by an increase in generic sales mix, a reduction in hormone replacement therapy and non-sedating antihistamine prescriptions, and, in the twenty-six week period ended August 30, 2003, the impact of a less severe cold and flu season than in the prior year and a slow start to the allergy season. Front-end same store sales increased 4.3% and 3.1% in the thirteen and twenty-six week periods ended August 30, 2003, respectively, primarily as a result of improvement in most core categories, such as over-the-counter items, consumables and vitamins, and improved assortments.

Pharmacy same store sales increased by 10.8% and 11.3% for the thirteen and twenty-six week periods ended August 31, 2002, respectively, as compared to the same thirteen and twenty-six week periods in the prior year. Factors contributing to pharmacy same store sales increases include inflation, improved attraction and retention of managed care customers, reduced cash pricing, our increased focus on pharmacy initiatives, such as predictive refill, and favorable industry trends. Front-end same store sales increased 1.3% and 2.0% for the thirteen and twenty-six week periods ended August 31, 2002, respectively, due to improved assortments, lower prices on key items and the distribution of a nationwide advertising circular.

Costs and Expenses


	Thirteen Week Period Ended						Twenty-Six Week Period Ended
	August 30, 2003			August 31, 2002			August 30, 2003			August 31, 2002
	(dollars in thousands)
Cost of goods sold, including occupancy costs	$	3,087,860		$	2,958,690		$	6,156,035		$	5,952,468
Gross profit		964,231			897,820			1,942,224			1,827,773
Gross margin		23.8	%		23.3	%		24.0	%		23.5	%
Selling, general and administrative expenses		893,337			865,931			1,783,070			1,765,074
Selling, general and administrative expenses as a percentage of revenues		22.0	%		22.5	%		22.0	%		22.7	%
Stock-based compensation expense		8,847			(6,746	)		18,682			1,348
Store closing and impairment (credits) charges		(8,994	)		58,223			(2,628	)		54,106
Interest expense		79,409			84,955			158,367			169,586
Interest rate swap contracts		—			14			—			278
Loss (gain) on debt modifications and retirements, net		1,888			(1,392	)		35,315			(1,662	)
Loss (gain) on sale of assets and investments, net		342			1,477			(1,162	)		(15,388	)

Cost of Goods Sold

Gross margin was 23.8% for the thirteen week period ended August 30, 2003 compared to 23.3% for the thirteen week period ended August 31, 2002. Gross margin was positively impacted by improvements in front end margin, which were driven by improved sales mix and lower seasonal and clearance markdowns, and by the impact of improved generic product mix on pharmacy margin. Gross margin was also positively impacted by a decrease in the LIFO provision due to a lower estimated rate of inflation, lower occupancy expense, and lower depreciation and amortization charges.

Gross margin was 24.0% for the twenty-six week period ended August 30, 2003 compared to 23.5% for the twenty-six week period ended August 31, 2002. Gross margin was positively impacted primarily by improvements in pharmacy margin, driven by improved generic product mix and improved third party reimbursements. Gross margin was also positively impacted by improvements in front end margin, which were driven by improved sales mix and lower seasonal and clearance markdowns, a decrease in the LIFO provision due to a lower estimated rate of inflation, lower occupancy expense, and lower depreciation and amortization charges.

We use the last-in, first-out (LIFO) method of inventory valuation, which is determined annually when inflation rates and inventory levels are finalized. Therefore, LIFO costs for interim period financial statements are estimated. Cost of sales includes a LIFO provision of $11.8 million and $26.8 million for the thirteen and twenty-six week periods ended August 30, 2003 versus $17.3 million and $34.5 million for the thirteen and twenty-six week periods ended August 31, 2002.

Selling, General and Administrative Expenses

SG&A as a percentage of sales was lower in the thirteen week period ended August 30, 2003 than in the thirteen week period ended August 31, 2002. This is due to lower depreciation and amortization charges resulting from a reduced store count and certain intangible assets becoming completely amortized, reduction in professional fees and better leveraging of our costs resulting from higher sales volume.

SG&A as a percentage of sales was lower in the twenty-six week period ended August 30, 2003 than in the twenty-six week period ended August 31, 2002. This is due to a non-recurring litigation charge of $20.0 million in the twenty-six week period ended August 31, 2002, lower depreciation and amortization charges resulting from a reduced store count and certain intangible assets becoming completely amortized, reduction in professional fees and better leveraging of our costs resulting from higher sales volume.

Store Closing and Impairment Charges

Store closing and impairment charges (credits) consist of:


	Thirteen Week Period Ended					Twenty-Six Week Period
	August 30, 2003			August 31, 2002		August 30, 2003			August 31, 2002
	(dollars in thousands)
Impairment charges	$	1,186		$	5,548	$	2,017		$	6,408
Store and equipment lease exit charges (credits)		(10,180	)		52,675		(4,645	)		47,698
	$	(8,994	)	$	58,223	$	(2,628	)	$	54,106

Impairment Charges: Impairment charges include non-cash charges of $1.2 million and $5.5 million in the thirteen week periods ended August 30, 2003 and August 31, 2002, respectively, for the impairment of long-lived assets at 14 and 41 stores, respectively. Impairment charges include non-cash charges of $2.0 million and $6.4 million in the twenty-six week periods ended August 30, 2003 and August 31, 2002, respectively, for the impairment of long-lived assets at 25 and 54 stores, respectively. These amounts include the write-down of long-lived assets at stores that were assessed for impairment because of management's intention to relocate or close the store or because of changes in circumstances that indicate that the carrying value of the assets may not be recoverable.

Store and Equipment Lease Exit Charges: During the thirteen week periods ended August 30, 2003 and August 31, 2002, we recorded charges for 1 and 32 stores, respectively, to be closed or relocated under long-term leases. During the twenty-six week periods ended August 30, 2003 and August 31, 2002, we recorded charges for 2 and 32 stores, respectively, to be closed or relocated under long-term leases. Effective January 1, 2003, 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 SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". Prior to January 1, 2003, charges incurred to close a store were recorded at the time management committed to closing the store. We calculate our liability for closed stores on a store-by-store basis. The calculation includes the 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 favorable lease terminations. This liability is discounted using a risk free rate of interest. We evaluate these assumptions each quarter and adjust the liability accordingly. The effect of lease terminations and changes in the risk-free rate of interest during the thirteen week period ended August 30, 2003 resulted in a net credit of $10.2 million for store closing. The effect of lease terminations and changes in the risk-free rate of interest during the twenty-six week period ended August 30, 2003 resulted in a net credit of $4.6 million for store closing.

As part of our ongoing business activities, we assess stores for potential closure. Decisions to close stores in future periods would result in charges for store lease exit costs and liquidation of inventory, as well as impairment of assets at these stores.

Interest Expense

Interest expense was $79.4 million and $158.4 million for the thirteen and twenty-six week periods ended August 30, 2003, compared to $85.0 and $169.6 million for the thirteen and twenty-six week periods ended August 31, 2002. The decrease was primarily due to a decrease in debt issue cost amortization and the reclassification of the accretion of closed store interest expense, which, pursuant to SFAS No. 146, is classified as a component of store closing and impairment charges in the thirteen and twenty-six week periods ended August 31, 2003. Assuming no further changes in LIBOR rates, and reflecting the recent debt modifications and retirements, we expect interest expense for the remainder of the year to be $154.1 million. The weighted average interest rates, excluding capital leases, on our indebtedness for the twenty-six week periods ended August 31, 2003 and August 30, 2002, were 6.8% and 7.4% respectively.

Income Taxes

The tax benefit of $42.9 million for the twenty-six week period ended August 31, 2002 is primarily related to the federal tax law change, enacted on March 9, 2002, which increased the carryback period of net operating losses incurred in fiscal 2001 and 2002 from two years to five.

We experienced an ownership change for statutory purposes during fiscal 2002, which resulted in a limitation on the future use of net operating loss carryforwards. We believe that this limitation does not further impair the net operating loss carryforwards because they are fully reserved.

Liquidity and Capital Resources

General

We have two primary sources of liquidity: (i) cash provided by operations and (ii) the revolving credit facility under our new senior secured credit facility. Our principal uses of cash are to provide working capital for operations, service our obligations to pay interest and principal on debt, to provide funds for capital expenditures and to provide funds for repurchases of our publicly traded debt.

Our ability to borrow under the new senior secured credit facility is based on a specified borrowing base consisting of eligible accounts receivable, inventory and prescription files. On August 30, 2003, we had $595.2 million in additional available borrowing capacity under the revolving credit facility net of outstanding letters of credit of $104.8 million.

New Credit Facility

On May 28, 2003, we replaced our senior secured credit facility with a new senior secured credit facility. The new facility consists of a $1.15 billion term loan and a $700.0 million revolving credit facility, and will mature on April 30, 2008. The proceeds of the loans made on the closing of the new credit facility were, among other things, used to repay the outstanding amounts under the old facility and to purchase the land and buildings at our Perryman, MD and Lancaster, CA distribution centers, which had previously been leased through a synthetic lease arrangement. On August 4, 2003, we amended and restated the senior secured credit facility, which reduced the interest rate on term loan borrowings under the senior secured credit facility by 0.5 percent.

Substantially all of Rite Aid Corporation's wholly owned subsidiaries guarantee the obligations under the new senior secured credit facility. The subsidiary guarantees are secured by a first priority lien on, among other things, the inventory, accounts receivable 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 under the senior secured credit facility. Rite Aid Corporation's direct obligations under the new senior secured credit facility are unsecured.

The new senior secured credit facility allows for the issuance of up to $150.0 million in additional term loans or additional revolver availability. We may request the additional loans at any time prior to the maturity of the senior secured credit facility, provided we are not in default of any terms of the facility, nor are in violation of any financial covenants. The new senior secured credit facility allows us to have outstanding, at any time, up to $1.0 billion of secured debt in addition to the senior secured credit facility. Accordingly, at August 30, 2003, the remaining additional permitted secured debt under the new senior credit facility is $198.0 million. We may issue unsecured debt with no restrictions on terms. Any such debt issued reduces the amount available for secured debt. We also have the ability to incur an unlimited amount of unsecured debt, if the terms of such unsecured indebtedness comply with certain terms set forth in the credit agreement and subject to our compliance with certain financial covenants. The new senior secured credit facility also allows for the repurchase of any debt with a maturity prior to April 30, 2008, and for a limited amount of debt with a maturity after April 30, 2008, based upon outstanding borrowings under the revolving credit facility and available cash at the time of the repurchase.

The new senior secured credit facility contains customary covenants, which place restrictions on the incurrence of debt, the payment of dividends, mergers, liens and sale and leaseback transactions. The senior secured credit facility also requires us to meet various financial ratios and limits capital expenditures. For the twelve months ended August 30, 2003 through the twelve months ending February 28, 2004, the covenants require us to maintain a maximum leverage ratio of 6.65:1. Subsequent to February 28, 2004, the ratio gradually decreases to 3.8:1 for the twelve months ending March 1, 2008. We must also maintain a minimum interest coverage ratio of 1.9:1 for the twelve months ended August 30, 2003 through the twelve months ended February 28, 2004. Subsequent to February 28, 2004, the ratio gradually increases to 3.25:1 for the twelve months ending March 1, 2008. In addition, we must maintain a minimum fixed charge ratio of 1.05:1 for the twelve months ended August 30, 2003 through the twelve months ended February 28, 2004. Subsequent to February 28, 2004, the ratio gradually increases to 1.25:1 for the twelve months ending March 1, 2008. Capital expenditures are limited to $250.0 million for the fiscal year ending February 28, 2004, with the allowable amount increasing in subsequent years.

We were in compliance with the covenants of the new senior secured credit facility and our other debt instruments as of August 30, 2003. With continuing improvements in operating performance, we anticipate that we will remain in compliance with our debt covenants. However, variations in our operating performance and unanticipated developments may adversely affect our ability to remain in compliance with the applicable debt maintenance covenants.

The new senior secured credit facility provides for customary events of default, including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of our debt to accelerate the maturity of debt having a principal amount in excess of $25.0 million.

Other Transactions

In May 2003, we issued $150.0 million aggregate principal amount of 9.25% senior notes due 2013. These notes are unsecured and effectively subordinate to our secured debt. The indenture governing the 9.25% senior notes contains customary covenant provisions that, among other things, include limitations on our ability to pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enter into sale lease-back transactions.

In April 2003, we issued $360.0 million aggregate principal amount of 8.125% senior secured notes due 2010. The notes are unsecured, unsubordinated obligations to Rite Aid Corporation and rank equally in right of payment with all other unsecured, unsubordinated indebtedness. Our obligations under the notes are guaranteed, subject to certain limitations, by subsidiaries that guarantee the obligations under our new senior secured credit facility. The guarantees are secured, subject to the permitted liens, by shared second priority liens, with the holders of our 12.5% senior secured notes and our 9.5% senior secured notes, granted by subsidiary guarantors on all of their assets that secure the obligations under the new senior secured credit facility, subject to certain exceptions. The indenture governing the 8.125% senior secured notes contains customary covenant provisions that, among other things, include limitations on our ability to pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enter into sale lease-back transactions.

During the twenty-six week period ended August 30, 2003, we redeemed the following securities (in thousands):


Debt Redeemed	Principal Amount Redeemed		Amount Paid		Gain / (loss)
6.0% fixed-rate senior notes due 2005	$	37,848	$	36,853	$	865
7.125% notes due 2007		124,926		120,216		4,314
6.875% senior debentures due 2013		15,227		13,144		1,981
7.7% notes due 2027		5,000		4,219		715
6.875% fixed-rate senior notes due 2028		10,000		7,975		1,895
12.5% senior secured notes due 2006		10,000		11,275		(1,888	)
Total	$	203,001	$	193,682	$	7,882

During the twenty-six week period ended August 31, 2002, we redeemed $4.5 million of our 6.0% dealer remarketable securities due 2003 for $4.2 million. The early redemption resulted in a gain on debt modification of $0.3 million.

On October 1, 2003, we paid, at maturity, our remaining outstanding balance on the 6.0% dealer remarketable securities.

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2004 and the succeeding four fiscal years are as follows: 2004-$58.5 million, 2005-$11.2 million, 2006-$250.9 million, 2007-$604.7 million, 2008-$12.2 million, and $2.8 billion in 2009 and thereafter.

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

Our operating activities used $61.2 million of cash in the twenty-six week period ended August 30, 2003 and used $5.1 million of cash in the twenty-six week period ended August 31, 2002. Operating cash flow for the twenty-six week period ended August 30, 2003 was negatively impacted by $132.3 million of interest payments and increases in accounts receivable and inventory, partially offset by improved operating results. Operating cash flow for the twenty-six week period ended August 31, 2002 was negatively impacted by $170.9 million of interest payments, increases in accounts receivable, inventory and decreases in accounts payable.

Cash used in investing activities was $151.7 million for the twenty-six week period ended August 30, 2003, due primarily to the purchase of land and buildings at our Perryman, MD and Lancaster, CA distribution centers, which had previously been held under a synthetic lease arrangement. Also impacting cash used in investing activities were expenditures for property, plant and equipment as well as intangible assets, offset by proceeds from asset dispositions. Cash used in investing activities was $28.0 million for the twenty-six week period ended August 31, 2002, due primarily to expenditures for property, plant and equipment as well as intangible assets, offset by proceeds from asset dispositions.

Cash provided by financing activities was $107.5 million for the twenty-six week period ended August 30, 2003. Cash provided by financing activities in the twenty-six week period ended August 30, 2003 was positively impacted by proceeds from the bond issuances referenced in "Liquidity and Capital Resources — Other Transactions", offset by the change in our credit facility and the early redemption of several bonds.

Cash used in financing activities was $40.0 million for the twenty-six week period ended August 31, 2002, due to payments of long-term debt.

Working capital was $1,691.0 million at August 30, 2003, compared to $1,676.9 million at March 1, 2003.

Capital Expenditures

During the twenty-six week period ended August 30, 2003, we incurred capital expenditures of $106.9 million related to the purchase of land and buildings at our Perryman, MD and Lancaster, CA distribution centers, which had previously been held under a synthetic lease arrangement. Excluding this transaction, which was incurred in connection with the issuance of our new senior secured credit facility, we plan to make total capital expenditures of approximately $170 to $190 million during fiscal 2004. These expenditures consist of approximately $60 to $70 million related to new store construction, store relocation and store remodel projects, $90 to $95 million dedicated to technology enhancements, improvements to distribution centers and other corporate requirements, and $20 to $25 million dedicated to the purchase of prescription files from independent pharmacies. Management expects that these capital expenditures will be financed primarily with cash flow from operations and borrowings under the revolving credit facility available under our senior secured credit facility. During the twenty-six week period ended August 30, 2003, we spent $59.2 million on capital expenditures (excluding the synthetic lease buyout noted above), consisting of $27.5 million related to new store construction, store relocation and other store construction projects. An additional $31.7 million was related to other store improvement activities and the purchase of prescription files from independent pharmacists.

Future Liquidity

We are highly leveraged. Our high level of indebtedness: (a) limits our ability to obtain additional financing; (b) limits our flexibility in planning for, or reacting to, changes in our business and the industry; (c) places us at a competitive disadvantage relative to our competitors with less debt; (d) renders us more vulnerable to general adverse economic and industry conditions; and (e) requires us to dedicate a substantial portion of our cash flow to service our debt. Based upon current levels of operations and planned improvements in our operating performance, management believes that cash flow from operations together with available borrowing under the new senior secured credit facility and other sources of liquidity will be adequate to meet our anticipated annual requirements for working capital, debt service and capital expenditures through the end of fiscal 2004. 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 seek additional short-term liquidity, we will evaluate our alternatives and take appropriate steps to obtain sufficient additional funds. The restrictions on the incurrence of additional indebtedness in our new senior secured credit facility and several of our bond indentures may limit our ability to obtain 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.

Recent Accounting Pronouncements

We have several stock option plans, which are described in detail in our Form 10-K for the year ended March 1, 2003. Prior to fiscal 2004, we accounted for these plans under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Effective March 2, 2003, we adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation". Under the modified prospective method of adoption selected by us under the provisions of SFAS No. 148, "Accounting for Stock Based Compensation — Transition and Disclosure", compensation cost recognized in the twenty-six week period ended August 30, 2003 is the same as that which would have been recognized had the recognition provisions of SFAS No. 123 been applied from its original effective date. Results for prior years have not been restated.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." This Statement requires that certain instruments that were previously classified as equity on a company's statement of financial position now be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Upon adoption in the third quarter of fiscal 2004, our redeemable preferred stock will be classified as a liability on the balance sheet.

In January of 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities". FIN No. 46 requires the consolidation of entities that cannot finance their activities without the support of other parties and that lack certain characteristics of a controlling interest, such as the ability to make decisions about the entity's activities via voting rights or similar rights. The entity that consolidates the variable interest entity is the primary beneficiary of the entity's activities. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and must be applied in the first period beginning after June 15, 2003 for entities in which an enterprise holds a variable interest entity that it acquired before February 1, 2003. We do not expect the adoption to have any impact on our financial position or results of operations.

Factors Affecting Our Future Prospects

For a discussion of risks related to our financial condition, operations and industry, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview" and "Factors Affecting our Future Prospects" included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2003, which we filed with the SEC on May 2, 2003.

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. The major market risk exposure is changing interest rates. Increases in interest rates would increase our interest expense. Since the end of fiscal 2003, our primary risk exposure has not changed. 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.

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 30, 2003.


	2004			2005			2006			2007			2008			Thereafter			Total			Fair Value at August 30, 2003
	(dollars in thousands)
Long-term debt, Including current portion
Fixed rate	$	58,522		$	2,592		$	236,485		$	593,167		$	678		$	1,724,050		$	2,615,493		$	2,555,326
Average Interest Rate		6.01	%		11.41	%		7.36	%		7.53	%		8.00	%		8.28	%		7.98	%
Variable Rate		—		$	8,625		$	14,375		$	11,500		$	11,500		$	1,104,000		$	1,150,000		$	1,150,000
Average Interest Rate		—	%		4.11	%		4.11	%		4.11	%		4.11	%		4.11	%		4.11	%

As of August 30, 2003, 30.5% of our total debt is exposed to fluctuations in variable interest rates.

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 will be materially adversely affected. We cannot assure you that any such borrowing or equity financing could be successfully completed.

As of August 30, 2003, the ratings on our new senior secured credit facility were BB by Standard & Poor's and B1 by Moody's. The interest rate on the variable rate borrowings on this facility are LIBOR plus 3.00% for the term loan and 3.50% for the revolving credit facility.

ITEM 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's 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, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company's 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, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Our settlement of the consolidated securities class action lawsuits brought on behalf of security holders who purchased our securities on the open market between May 2, 1997 and November 10, 1999 (and based on the allegation that our financial statements for fiscal 1997, fiscal 1998 and fiscal 1999 fraudulently misrepresented our financial position and results of operations for these periods) was approved by the United States District Court for the Eastern District of Pennsylvania by Order entered August 16, 2001. Although that Order was appealed by certain non-settling defendants (including our former auditor, KPMG, our former chief executive officer, Martin Grass, and our former chief financial officer, Frank Bergonzi), those non-settling defendants have now also settled with plaintiffs, which settlement received final approval by the District Court on June 2, 2003. On June 9, 2003 all parties to the appeal filed a stipulation of dismissal of the appeal.

ITEM 2. Changes in Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

On June 25, 2003, we held our 2003 Annual Meeting of Stockholders. At the 2003 Annual Meeting, our stockholders:


1.	Elected two directors to hold office until the 2006 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified, by the following votes:

Common and Series D Preferred stockholders:


Colin V. Reed	For:	467,535,701	Against:	6,900	Withheld:	5,070,126
Stuart M. Sloan	For:	465,926,741	Against:	600	Withheld:	6,681,066
Series D Preferred stockholders:	For:	71,575,628	Against:	0	Withheld:	0

Following the 2003 Annual Meeting of Stockholders, the following persons continued to serve as our Directors: John G. Danhakl, Alfred M. Gleason, George G. Golleher, Robert G. Miller, Colin V. Reed, Mary F. Sammons, Stuart M. Sloan, and Jonathon D. Sokoloff.


2.	Defeated a stockholder proposal that requested the Company's management to prepare and make public an employment diversity report.

Common stockholders:


For:	17,166,224	Against:	146,940,113	Abstain:	8,521,244
Series D Preferred stockholders:
For:	0	Against:	71,575,628	Abstain:	0

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K

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


Exhibit Numbers	Description	Incorporation By Reference To
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 October 25, 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	8% Series D Cumulative Pay-in-Kind Preferred Stock Certificate of Designation dated October 3, 2001	Exhibit 3.5 to Form 10-Q, filed on October 12, 2001
3.5	By-laws, as amended on November 8, 2000	Exhibit 3.1 to Form 8-K, filed on November 13, 2000
3.6	Amendment to By-laws, adopted January 30, 2002	Exhibit T3B.2 to Form T-3, filed on March 4, 2002
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 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013	Exhibit 4A to Registration Statement on Form S-3, File No. 333-63794, 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 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 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 5.50% Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028	Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999


Exhibit Numbers	Description	Incorporation By Reference To
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 5.50% Notes due 2003, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028	Exhibit 4.4 to Form 8-K, filed on February 7, 2000
4.5	Indenture, dated as of June 27, 2001, between Rite Aid Corporation, as issuer and State Street Bank and Trust Company, as trustee, related to the Company's 12.50% Senior Secured Notes due 2006	Exhibit 4.7 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001
4.6	Indenture, dated as of June 27, 2001 between Rite Aid Corporation, as issuer and BNY Midwest Trust Company, as trustee, related to the Company's 11¼% Senior Notes due 2008	Exhibit 4.8 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001
4.7	Indenture, dated as of November 19, 2001, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 4.75% Convertible Notes due December 1, 2006	Exhibit 4.3 to Form 10-Q, filed on January 15, 2002
4.8	Indenture, dated as of February 12, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 9½% Senior Secured Notes due 2011	Exhibit 4.1 to Form 8-K, filed on March 5, 2003
4.9	Indenture, dated as of April 22, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 8.125% Senior Secured Notes due 2010	Exhibit 4.11 to Form 10-K, filed on May 2, 2003
4.10	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
10.1	Credit Agreement dated as of June 27, 2001, as amended and restated as of May 28, 2003 , as further amended and restated as of August 4, 2003, among Rite Aid Corporation, the Lenders named therein, Citicorp North America, Inc. as Administrative Agent and Collateral Processing Co-Agent, and JPMorgan Chase Bank, as Syndication Agent and Collateral Processing Co-Agent.	Exhibit 99.1 to Form 8-K, filed on August 7, 2003


Exhibit Numbers	Description	Incorporation By Reference To
10.2	Statement regarding computation of earnings per share. (See Note 3 to the condensed consolidated financial statements)	Filed herewith
10.3	Amendment No. 2 to Employment Agreement by and between Rite Aid Corporation and Mary F. Sammons, dated as of September 30, 2003.	Filed herewith
10.4	Employment Agreement by and between Rite Aid Corporation and Kevin Twomey, dated as of September 1, 2003.	Filed herewith
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	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

Rite Aid filed the following current report on Form 8-K during the thirteen week period ended August 30, 2003:


1.	Rite Aid Corporation filed a Current Report on Form 8-K on August 7, 2003, discussing under Item 5, the amendment and restatement of Rite Aid Corporation's senior credit facility.

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 7, 2003

RITE AID CORPORATION
By: /s/ ROBERT B. SARI
Robert B. Sari
Senior Vice President and
General Counsel

Date: October 7, 2003

By: /s/ CHRISTOPHER S. HALL
Christopher S. Hall
Executive Vice President and
Chief Financial Officer

GRAPHIC 3 ebox.gif GRAPHIC begin 644 ebox.gif M1TE&.#EA"@`*`(```````/___R'Y!```````+``````*``H```(1A(\0RVO= - -'G1J!CDQU+'FE!0`.S\_ ` end GRAPHIC 4 spacer.gif GRAPHIC begin 644 spacer.gif K1TE&.#EA`0`!`(```````````"'Y!`$`````+``````!``$```("1`$`.S\_ ` end GRAPHIC 5 xbox.gif GRAPHIC begin 644 xbox.gif M1TE&.#EA"@`*`(```````/___R'Y!```````+``````*``H```(6A(\0RVNA 2F'K0N0@QS3+Z6TE EX-10.3 6 file002.htm AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT

AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT ("Amendment No. 2"), by and between Rite Aid Corporation, a Delaware Corporation (the "Company") and Mary Sammons ("Executive") is entered into this 30th day of September, 2003 (the "Effective Date").

WHEREAS, Executive and Company have previously entered into that certain Employment Agreement dated as of December 5, 1999, as supplemented by side letter dated April 5, 2000 between counsel and as amended by Amendment No. 1 dated May 7, 2001 (collectively, the "Employment Agreement"); and

WHEREAS, on June 25, 2003 Executive was promoted to the position of President and Chief Executive Officer and the parties desire to amend the Employment Agreement to reflect the change in Executive's position and duties, compensation and other benefits;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive hereby agree as follows:

1. Position and Duties. Any reference in the Employment Agreement to "President and Chief Operating Officer" shall be changed to "President and Chief Executive Officer". During the Employment Period, the Executive shall serve as President and Chief Executive Officer of the Company, with such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities appropriate to such office as may from time to time be assigned to her by the Board of Directors of the Company ("Board"). Executive shall report directly to the Board.

2. Incentive Compensation. The Executive's Annual Target Bonus shall equal at least 100% of the Annual Base Salary in effect for the Executive at the beginning of such fiscal year.

3. Other Benefits. During the Employment Period, the Company shall provide Executive with use of Company-owned aircraft for business and personal travel and shall provide term life insurance covering the Executive's life and long term disability insurance, in each case in a face amount equal to $3,000,000.

4. Obligations of the Company upon Termination. Following any termination for any reason (other than Cause) of the Executive's employment with the Company, the Company shall make an annual payment to Executive following termination of employment and continuing for life (and the life of her spouse) equal to the cost to the Executive of purchasing medical coverage substantially comparable in all material respects to the coverage provided by the Company to its senior executives (and their spouses and dependents) immediately prior to such termination, excepting payments for such periods that the Company provides such coverage pursuant to Sections 5(a) or 5(b) of the Employment Agreement. If the Executive's employment is terminated by Executive (other than for Good Reason) during the Employment Period, the entire Option shall remain vested and exercisable throughout the remainder of its ten-year term and any other outstanding stock option that has vested and become exercisable prior to the Date of Termination shall remain vested and exercisable for a period of ninety (90) days following the Date of Termination, at the end of which period such option shall terminate; provided, however, if the Date of Termination occurs after Executive turns age 60, all vested stock options shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options.

5. Capitalized Terms. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Employment Agreement.

6. Employment Agreement to Remain in Effect. Except as modified by this Amendment No. 2, the Employment Agreement shall remain in full force and effect in accordance with its terms. In the event of a conflict between the provisions of this Amendment No. 2 and the Employment Agreement, this Amendment No. 2 shall be controlling.

IN WITNESS WHEREOF, Executive has hereunto set Executive's hand and, pursuant to due authorization, the Company has caused this Amendment No. 2 to be executed in its name and on its behalf, all as of the date and year first above written.

RITE AID CORPORATION

By: ______________________________
Robert B. Sari
Its: Senior Vice President

________________________________
Mary Sammons

EX-10.4 7 file003.htm EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 1st day of September, 2003 (the "Effective Date") by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Kevin J. Twomey (the "Executive").

WHEREAS, Executive desires to provide the Company with his services and the Company desires to employ Executive in the capacity of Senior Vice President, Chief Accounting Officer on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

1. Term Of Employment.

The term of Executive's employment with the Company hereunder (the "Term") pursuant to this Agreement shall commence on the Effective Date and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is two (2) years following the Effective Date; provided, however, that on each anniversary of the Effective Date occurring prior to the termination of Executive's employment hereunder (each such date a "Renewal Date"), an additional year shall be added to the Term, unless notice of non-renewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. For purposes of this Agreement, except as otherwise provided herein, the phrases "year during the Term" or "during any year of the Term" or similar language shall refer to each 12-month period commencing on the Effective Date or applicable anniversaries thereof.

2. Position And Duties.

2.1 Position. During the Term, Executive shall be employed as Senior Vice President, Chief Accounting Officer. Following termination of Executive's employment for any reason, Executive shall immediately resign from all offices and positions he holds with the Company or any subsidiary.

2.2 Duties. Subject to the supervision and control of the Executive Vice President and Chief Financial Officer of the Company (or any designee), to whom he shall report, Executive shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities of his position as Senior Vice President, Chief Accounting Officer and shall render such services on the terms set forth herein. In addition, Executive shall have such other executive and managerial powers and duties with respect to the Company and its subsidiaries, affiliates and strategic partners as may be assigned to him by the Executive Vice President and Chief Financial Officer the Company or any designee. Except for sick leave, vacations (as provided in Section 4.3 below), and excused leaves of absence, Executive shall, throughout the Term, devote substantially all his working time, attention, knowledge and skills faithfully and to the best of his ability, to the duties and responsibilities of his position in furtherance of the business affairs and activities of the Company and its subsidiaries, affiliates and strategic partners. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as the Company may from time to time establish for management employees.

3. Compensation.

3.1 Base Salary. During the Term, as compensation for his services hereunder, Executive shall receive a salary at the annualized rate of Three Hundred Seventeen Thousand Dollars ($317,000) per year ("Base Salary"), which shall be paid in accordance with the Company's normal payroll practices and procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive.

3.2 Annual Performance Bonus. The Executive shall participate each fiscal year during the Term in the Company's annual bonus plan as adopted and approved by the Board or the Compensation Committee from time to time. The Executive's annual target bonus opportunity pursuant to such plan (the "Annual Target Bonus") shall equal 40% of the Base Salary in effect for the Executive at the beginning of such fiscal year.

3.3 Stock Awards.

(a) The Compensation Committee of the Board on January 10, 2001 (the "Grant Date") has approved the grant to Executive of an option (the "Option") to purchase 200,000 shares of the Company's common stock, par value $1.00 per share ("Company Stock"). The Option shall (i) be a non-qualified stock option, (ii) have an exercise price equal to the closing price of the Company's stock as reported on the New York Stock Exchange on the Grant Date, (iii) have a term of ten (10) years following the Grant Date, (iv) vest and become exercisable as to 1/3 of the shares of Company stock subject to the Option on each of the first three (3) anniversaries of the Grant Date, (v) be subject to the acceleration, exercise and termination provisions set forth in Section 3.3(c) and Article 5 hereof and (vi) otherwise be evidence by and subject to the terms of the Company's form of stock option agreement for officers.

(b) The Compensation Committee of the Board has awarded to Executive 25,000 shares of restricted Company Stock (the "Restricted Stock"). Subject to (i) acceleration and forfeiture provisions set forth in Section 3.3(c) and Article 5 hereof and (ii) the terms of the Company's Form of Restricted Stock agreement for officers, restrictions applicable to the Restricted Stock shall lapse as to 1/3 of such shares on each of the first three (3) anniversaries of the award date.

(c) Upon the Change in Control of the Company prior to the termination of Executive's employment with the Company, the Restricted Stock shall immediately vest and the Options shall immediately vest and become exercisable in full. For purposes of this Agreement "Change in Control" shall have the meaning set forth in the attached Appendix A.

(d) It is understood and acknowledged by Executive that the securities underlying the Option will not be subject to an effective registration statement under the federal securities laws until some time after the Grant Date or award date. The Company agrees that if, as of the date of termination of Executive's employment under the circumstances described in Sections 5.3 and 5.5, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, the 90-day periods in Section 5.3 and 5.5, as applicable, will be deemed to run from the first date such securities become subject to an effective registration statement. The Company further agrees that if, as of the date of Executive's voluntary termination of employment other than for Good Reason, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, Executive will be permitted to exercise the Option, to the extent vested and exercisable as of the date of such termination of employment, during the 30-day period following the first date such securities become subject to an effective registration statement.

4. Additional Benefits.

4.1 Employee Benefits. During the Term, Executive shall be entitled to participate in the employee benefit plans in which management employees of the Company are generally eligible to participate, subject to any eligibility requirements and the other generally applicable terms of such plans.

4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably incurred by him in furtherance of his duties hereunder, including without limitation travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto as the Company may from time to time adopt or as may be required in order to permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in effect.

4.3 Vacation. Executive shall be entitled to four weeks paid vacation during each year of the Term.

4.4 Relocation Expenses.

(a) The Company shall reimburse Executive for his reasonable expenses incurred in moving his household goods and cars from his principal residence in Lewisville, Texas to the Harrisburg, Pennsylvania area, in accordance with the Company's moving expense policies applicable to Executive Level employees generally.

(b) The Company shall reimburse Executive for any loss incurred upon sale of his principal Lewisville residence (measured as the excess, if any, of (i) the sum of (A) the original purchase price of the residence plus (B) the documented actual cost of any improvement thereto since the date of purchase, the approximate aggregate amount of which has previously been disclosed to the Company, plus (C) a standard real estate commission over (ii) the sale price), such amount to be "grossed up" to offset in full any net increase in Executive's federal, state and local income, employment and other taxes resulting therefrom (and from such gross-up); provided, that the aggregate amount payable pursuant to this section 4.4(b), including any such gross-up, shall not exceed $100,000. Executive agrees that he shall use his best efforts to sell such residence at its fair market value.

4.5 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile allowance of $750.00 per month.

4.6 Annual Financial Planning Allowance. During each year of the Term, the Company shall provide Executive with an executive planning allowance in the amount of $5,000.

4.7 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) relating to or arising out of the Executive's employment with and service as an Officer of the Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any Director and Officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the date of termination of employment.

5. Termination.

5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate Executive's employment hereunder for Cause (as defined below). Such termination shall be effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of such notice in accordance with Section 12 hereof. "Cause" shall mean (i) Executive's gross negligence or willful misconduct in the performance of the duties or responsibilities of his position with the Company or any subsidiary, or failure to timely carry out any lawful directive of the Executive Vice President and Chief Financial Officer or any designee; (ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; or (iv) the use or imparting by Executive of any confidential or proprietary information of the Company, or any subsidiary in violation of any confidentiality or proprietary agreement to which Executive is a party.

5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason. In the event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily without Good Reason:

(a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses incurred by Executive through the date of notice of such termination, to the extent otherwise provided under Section 4.2 above and (iii) all other vested payments and benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such termination ((i), (ii) and (iii), the ("Accrued Benefits"). All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment.

(b) Except as provided in Section 3.3, any portion of the Option or any other then outstanding stock option that has not been exercised prior to the date of termination shall immediately terminate as of such date, and any portion of any equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the date of termination shall be forfeited as of such date.

Any termination of Executive's employment by Executive voluntarily without Good Reason shall be effective upon 30 days' notice to the Company.

5.3 Compensation upon Termination of Executive's Employment by the Company Other Than for Cause or by Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other than for Cause or by Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason:

(a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) an amount equal to two times the sum of Executive's Base Salary plus Annual Target Bonus as of the date of termination of employment, such amount payable in equal installments pursuant to the Company's standard payroll procedures for management employees over a period of two years following the date of termination of employment, and (iii) continued health insurance coverage for Executive and his immediate family for a period of two years following the date of termination of employment. In addition, if such termination occurs following the start of the Company's fiscal year, Executive shall also be entitled to receive a pro rata annual bonus determined by multiplying Executive's then Annual Target Bonus by a fraction, (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the Company (or, if later, Executive's start date) and the date of termination of employment and (y) the denominator of which is 365.

(b) All stock option awards held by Executive shall vest and become immediately exercisable to the extent such options would otherwise have become vested and exercisable had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3, such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any remaining portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date.

(c) All restricted stock awards held by Executive shall vest immediately to the extent such awards would otherwise have become vested had Executive remained in the employ of the Company for a period of two years following the date of termination.

(d) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment.

Any termination of employment pursuant to this Section 5.3 shall be effective upon thirty (30) days notice thereof.

5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any one of the following:

(a) any material adverse alteration in Executive's titles, positions, duties, authorities or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time;

(b) the assignment to Executive of any duties or responsibilities materially inconsistent with Executive's status as Senior Vice President, Chief Accounting Officer of the Company (it being understood that, if the Company is no longer a public company, the failure of Executive to hold such positions and the attendant duties and responsibilities with any ultimate corporate or other parent of the Company or any successor shall be deemed to constitute such Good Reason); or

(c) any other material breach of this Agreement by the Company, including without limitation any decrease in Executive's Base Salary or Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2 except to the extent such decrease is generally applicable to all other employees of the Company having duties and responsibilities equivalent to those of Executive;

provided, however, that in each such case the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any of the foregoing, to cure the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder.

5.5 Compensation upon Termination of Executive's Employment by Reason of Executive's Death or Total Disability. In the event that Executive's employment with the Company is terminated by reason of Executive's death or Total Disability (as defined below):

(a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in which Executive is a participant and (iii) continued health insurance coverage for Executive and/or his immediate family, as applicable, for a period of two years following the date of termination of employment.

(b) All stock option awards held by Executive shall vest and become immediately exercisable to the extent such options would otherwise have become vested and exercisable had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3, such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of one (1) year following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any remaining portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date.

(c) All restricted stock awards held by Executive shall vest to the extent such awards would otherwise have become vested had Executive remained in the employ of the Company for a period of two years following the date of termination.

"Total Disability" shall mean any physical or mental disability that prevents Executive from performing one or more of the essential functions of his position for a period of not less than 90 days in any 12-month period and/or which is expected to be of permanent duration.

5.6 Survival. In the event of any termination of Executive's employment for any reason, Executive and the Company nevertheless shall continue to be bound by the terms and conditions set forth in Sections 6 through 10 below, which shall survive the expiration of the Term.

5.7 Excise Tax Gross-Up.

(a) In the event that any payment or benefit received or to be received by the Executive pursuant to the Terms of this Agreement or any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the Excise Tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5.7(b) below an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the company Executive with respect thereto, shall be subject to the Total payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excise parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute

payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates.

(b) The Gross-Up Payment provided for in Section 5.7(a) hereof shall be made upon the earlier of (i) ten days following the date of termination of Executive's employment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax.

(c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5.7(a) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or proceeding. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments.

(d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company.

5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not be entitled to damages or to any severance or other benefits upon termination of employment with the Company under any circumstances and for any or no reason.

6. Protection of Confidential Information.

Executive acknowledges that during the course of his employment with the Company, its subsidiaries, affiliates and strategic partners, he will be exposed to documents and other information regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation information about their past, present and future financial condition, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade secrets, current and prospective customer lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs and information about the Company and its subsidiaries, affiliates and

strategic partners not readily available to the public (the "Confidential Information"). Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition of the foregoing, the Executive covenants and agrees as follows:

6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever divulge, disclose, or otherwise use any Confidential Information, unless and until such information is readily available in the public domain by reason other than Executive's disclosure or use thereof in violation of the first clause of this Section 6.1.

6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at any time and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the Company's offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present officers, directors, employees or consultants (collectively, the "Company Property, Records and Files"); it being expressly understood that, upon termination of Executive's employment at any time and for any reason, Executive shall not be authorized to retain any of the Company Property, Records and Files.

7. Noncompetition and Other Matters.

7.1 Noncompetition. During the Term and, as applicable, for the two-year period immediately following the date of termination of Executive's employment either (x) by the Company for Cause or (y) by Executive other than for Good Reason, Executive shall not, directly or indirectly, in any city, town, county, parish or other municipality in any state of the United States (the names of each such city, town, parish, or other municipality, including, without limitation, the name of each county in the Commonwealth of Pennsylvania being expressly incorporated by reference herein), or any other place in the world, where the Company, or its subsidiaries, affiliates, strategic partners, successors, or assigns, engages in the ownership, management and operation of retail drugstores (i) engage in a Competing Business for Executive's own account; (ii) enter the employ of, or render any consulting services to, any Competing Business; or (iii) become interested in any Competing Business in any capacity, including, without limitation, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; provided, however, Executive may own, directly or indirectly, solely as a passive investment, securities of any entity traded on any national securities exchange if Executive is not a controlling person of, or a member of a group which controls, such entity and does not, directly or indirectly, own 1% or more of any class of securities of such entity. For purposes of this Section 7.1, the phrase "Competing Business" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores.

7.2 Noninterference. During the Term and for the two-year period immediately following the date of termination of Executive's employment at any time and for any reason (the "Restricted Period"), Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason.

7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or its

subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason.

8. Rights and Remedies upon Breach.

If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in equity.

8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns.

8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity constituting a breach of any of the Restrictive Covenants.

8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect without regard to the invalid portions.

8.4 Modification by the Court. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court shall have the power (and is hereby instructed by the parties) to reduce the duration or scope of such provision, as the case may be (it being the intent of the parties that any such reduction be limited to the minimum extent necessary to render such provision enforceable), and, in its reduced form, such provision shall then be enforceable.

8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

9. No Violation of Third-Party Rights. Executive represents, warrants and covenants that he:

(i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade secrets, or other proprietary rights);

(ii) is not a party to any conflicting agreements with third parties, which will prevent him from fulfilling the terms of employment and the obligations of this Agreement;

(iii) does not have in his possession any confidential or proprietary information or documents belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or proprietary information or documents of others; and

(iv) agrees to respect any and all valid obligations which he may now have to prior employers or to others relating to confidential information, inventions, discoveries or other intellectual property which are the property of those prior employers or others, as the case may be.

Executive has supplied to the Company a copy of each written agreement to which Executive is subject, which includes any obligation of confidentiality, assignment of intellectual property or non-competition.

Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants.

10. Arbitration.

Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive's employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the parties or their subsidiaries, affiliates; strategic partners, successors or assigns, shall be submitted to binding arbitration in Harrisburg, Pennsylvania according to the National Employment Dispute Resolution Rules and procedures of the American Arbitration Association. The parties agree that the parties shall each bear his or its own attorneys' fees and costs in connection with any such arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the Pennsylvania Constitution, the United States Constitution, and applicable state and federal fair employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and any other state or federal law.

11. Assignment.

Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent corporations; or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company's assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company.

12. Notices.

All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below:


If to the Company:	Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel Fax: (717) 760-7867


If to Executive:	Kevin J. Twomey 802 King Ban Drive Lewisville, TX 75056

Any party may change such party's address for notices by notice duly given pursuant hereto.

13. General.

13.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under; this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment.

13.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction.

13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to Executive's employment with the Company and cancels and supersedes all agreements, arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the Executive and the Company and/or any subsidiary or affiliate.

13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

13.5 Conflict with Other Agreements. Executive represents and warrants that neither his execution of this Agreement nor the full and complete performance of his obligations hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any person or entity.

13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the Company (and its successors and assigns) and Executive and his heirs, executors and personal representatives.

13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations.

13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.

13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or

equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy.

13.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of the Term to the extent necessary to give effect to its provisions.

13.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. .

13.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument.

IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first written above.

RITE AID CORPORATION

By:

Its:

EXECUTIVE

APPENDIX A

A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred:

(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or

(2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or

(3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapi-talization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or

(4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or dispo-sition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immedi-ately prior to such sale.

"Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act.

"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.

"Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

EX-31.1 8 file004.htm CERTIFICATION OF CEO

CERTIFICATIONS

I, Mary F. Sammons, Chief Executive Officer, certify that:

I have reviewed this quarterly report on Form 10-Q of Rite Aid Corporation;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 7, 2003

By: /s/ MARY F. SAMMONS

Mary F. Sammons
Chief Executive Officer

EX-31.2 9 file005.htm CERTIFICATION OF CFO

CERTIFICATIONS

I, Christopher S. Hall, Executive Vice President and Chief Financial Officer, certify that:

I have reviewed this quarterly report on Form 10-Q of Rite Aid Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 7, 2003

By: /s/ CHRISTOPHER S. HALL

Christopher S. Hall
Executive Vice President and
Chief Financial Officer

EX-32 10 file006.htm CERTIFICATION OF CEO AND CFO

Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Rite Aid Corporation (the "Company") for the quarterly period ended August 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Mary F. Sammons, as Chief Executive Officer of the Company, and Christopher S. Hall, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of her/his knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MARY F. SAMMONS

Name: Mary F. Sammons
Title: Chief Executive Officer
Date: October 7, 2003

/s/ CHRISTOPHER S. HALL

Name: Christopher S. Hall
Title: Chief Financial Officer
Date: October 7, 2003

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

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(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

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

17011
(Zip Code)