RITE AID CORP (Form: 10-Q, Received: 12/22/2005 14:48:42)

(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)

(Zip Code)

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 November 26, 2005

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 by check mark whether the registrant is a shell company (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 525,429,005 shares of its $1.00 par value common stock outstanding as of December 19, 2005.

RITE AID CORPORATION

TABLE OF CONTENTS


		Page
	Cautionary Statement Regarding Forward-Looking Statements		3
PART I FINANCIAL INFORMATION
ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of November 26, 2005 and February 26, 2005		4
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended November 26, 2005 and November 27, 2004		5
	Condensed Consolidated Statements of Operations for the Thirty-nine Week Periods Ended November 26, 2005 and November 27, 2004		6
	Condensed Consolidated Statements of Cash Flows for the Thirty-nine Week Periods Ended November 26, 2005 and November 27, 2004		7
	Notes to Condensed Consolidated Financial Statements		8
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		20
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		30
ITEM 4.	Controls and Procedures		30
PART II OTHER INFORMATION
ITEM 1.	Legal Proceedings		32
ITEM 1A.	Risk Factors		32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32
ITEM 3.	Defaults Upon Senior Securities		32
ITEM 4.	Submission of Matters to a Vote of Security Holders		32
ITEM 5.	Other Information		32
ITEM 6.	Exhibits		33

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 long term strategy;


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


	•	our ability to open or relocate stores according to our real estate development program;


	•	the outcomes of pending lawsuits and governmental investigations;


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


	•	the efforts of private and public third party payors to reduce prescription drug reimbursements and encourage mail order, 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 February 26, 2005 (‘‘the Fiscal 2005 10-K’’), which we filed with the Securities and Exchange Commission (‘‘SEC’’) on April 29, 2005 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)


	November 26, 2005			February 26, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	105,130		$	162,821
Accounts receivable, net		308,702			483,455
Inventories, net		2,485,723			2,310,153
Prepaid expenses and other current assets		62,904			50,325
Total current assets		2,962,459			3,006,754
Property, plant and equipment, net		1,678,357			1,733,694
Goodwill		684,535			684,535
Other intangibles, net		186,360			179,480
Other assets		324,540			328,120
Total assets	$	5,836,251		$	5,932,583
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	188,684		$	223,815
Accounts payable		870,886			757,571
Accrued salaries, wages and other current liabilities		714,740			690,351
Total current liabilities		1,774,310			1,671,737
Convertible notes		248,625			247,500
Long-term debt, less current maturities		2,478,758			2,680,998
Lease financing obligations, less current maturities		165,122			159,023
Other noncurrent liabilities		817,118			850,391
Total liabilities		5,483,933			5,609,649
Commitments and contingencies		—			—
Stockholders' equity:
Preferred stock – series E, par value $1 per share, liquidation value $50 per share		120,000			120,000
Preferred stock – series F, par value $1 per share, liquidation value $100 per share		—			113,081
Preferred stock – series G, par value $1 per share, liquidation value $100 per share		119,122			113,081
Preferred stock – series H, par value $1 per share, liquidation value $100 per share		118,247			113,081
Preferred stock – series I, par value $1 per share, liquidation value $25 per share		116,074			—
Common stock, par value $1 per share		525,407			520,438
Additional paid-in capital		3,110,869			3,121,404
Accumulated deficit		(3,735,396	)		(3,756,146	)
Accumulated other comprehensive loss		(22,005	)		(22,005	)
Total stockholders' equity		352,318			322,934
Total liabilities and stockholders' equity	$	5,836,251		$	5,932,583

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
	November 26, 2005			November 27, 2004
Revenues	$	4,145,683		$	4,107,336
Costs and expenses:
Cost of goods sold, including occupancy costs		3,127,776			3,098,555
Selling, general and administrative expenses		956,017			909,016
Store closing and impairment charges		2,652			2,397
Interest expense		66,909			70,653
Loss on debt modifications and retirements, net		—			20,216
(Gain) loss on sale of assets and investments, net		(1,372	)		849
		4,151,982			4,101,686
(Loss) income before income taxes		(6,299	)		5,650
Income tax (benefit) expense		(1,079	)		5,362
Net (loss) income	$	(5,220	)	$	288
Computation of loss attributable to common stockholders:
Net (loss) income	$	(5,220	)	$	288
Accretion of redeemable preferred stock		(26	)		(26	)
Cumulative preferred stock dividends		(7,254	)		(8,694	)
Loss attributable to common stockholders-basic and diluted	$	(12,500	)	$	(8,432	)
Basic and diluted loss per share	$	(0.02	)	$	(0.02	)

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)


	Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004
Revenues	$	12,499,642		$	12,475,599
Costs and expenses:
Cost of goods sold, including occupancy costs		9,386,317			9,388,222
Selling, general and administrative expenses		2,839,158			2,748,014
Store closing and impairment charges		26,305			11,263
Interest expense		205,273			224,973
Loss on debt modifications and retirements, net		9,186			19,425
Gain on sale of assets and investments, net		(3,865	)		(1,323	)
		12,462,374			12,390,574
Income before income taxes		37,268			85,025
Income tax expense		10,635			11,139
Net income	$	26,633		$	73,886
Computation of (loss) income attributable to common stockholders:
Net income	$	26,633		$	73,886
Premium to repurchase preferred stock		(5,883	)		—
Accretion of redeemable preferred stock		(77	)		(77	)
Cumulative preferred stock dividends		(25,020	)		(25,573	)
(Loss) income attributable to common stockholders-basic and diluted	$	(4,347	)	$	48,236
Basic and diluted (loss) income per share	$	(0.01	)	$	0.09

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES

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


	Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004
Operating activities:
Net income	$	26,633		$	73,886
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization		184,740			185,581
Stock-based compensation expense		15,219			14,525
Store closing and impairment charges		26,305			11,263
Loss on debt modifications and retirements, net		9,186			19,425
Gain on sale of assets and investments, net		(3,865	)		(1,323	)
Net proceeds from accounts receivable securitization		195,000			335,000
Provision (benefit) for deferred income taxes		13,582			(2,712	)
Changes in income tax receivables and payables, net		1,018			40,354
Changes in other operating assets and liabilities		(131,060	)		(152,101	)
Net cash provided by operating activities		336,758			523,898
Investing activities:
Expenditures for property, plant and equipment		(191,184	)		(120,455	)
Intangible assets acquired		(34,599	)		(21,202	)
Proceeds from sale-leaseback transactions		72,505			53,800
Proceeds from dispositions		21,096			6,178
Net cash used in investing activities		(132,182	)		(81,679	)
Financing activities:
Principal payments on long-term debt		(336,437	)		(78,676	)
Principal payments on senior secured credit facility		(448,875	)		(1,150,000	)
Proceeds from bank credit facility		—			438,015
Net proceeds from revolver		530,000			99,000
Change in zero balance cash accounts		5,251			11,500
Proceeds from financing secured by owned property		5,352			—
Proceeds from the issuance of preferred stock		116,885			—
Payments for the redemption of preferred stock		(123,533	)		—
Payments for preferred stock dividends		(9,244	)		—
Proceeds from issuance of common stock		5,490			2,996
Deferred financing costs paid		(7,156	)		(4,041	)
Net cash used in financing activities		(262,267	)		(681,206	)
Decrease in cash and cash equivalents		(57,691	)		(238,987	)
Cash and cash equivalents, beginning of period		162,821			334,755
Cash and cash equivalents, end of period	$	105,130		$	95,768
Supplementary cash flow data:
Cash paid for interest (net of capitalized amounts of $551 and $160, respectively)	$	174,203		$	191,183
Cash refunds of income taxes, net	$	3,126		$	25,580
Equipment financed under capital leases	$	8,162		$	10,446
Reduction in lease financing obligation	$	3,028		$	—

See accompanying notes to condensed consolidated financial statements.

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen and Thirty-Nine Week Periods Ended
November 26, 2005 and November 27, 2004
(Dollars and share information in thousands, except per share amounts)
(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments (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 thirty-nine week periods ended November 26, 2005 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 2005 10-K.

2. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 123R, ‘‘Share-Based Payment.’’ This standard requires companies to account for share-based payments to associates using the fair value method of expense recognition. This standard is required to be adopted as of the first fiscal year beginning after December 15, 2005. The Company has not yet adopted SFAS No. 123R. However, as the Company has adopted the fair value recognition provisions of SFAS No. 123, the Company does not expect the adoption of SFAS No. 123R to have a material impact on its financial position or results of operations.

In March 2005, the FASB issued Interpretation No. 47 (‘‘FIN 47’’), ‘‘Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143.’’ FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 states that a conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing or method of settlement are conditional upon a future event that may or may not be within control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for the interim financial information is permitted but not required. Early adoption of FIN 47 is encouraged. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

3. (Loss) Income Per Share

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


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
Numerator for (loss) income per share:
Net (loss) income	$	(5,220	)	$	288		$	26,633		$	73,886
Premium to repurchase preferred stock		—			—			(5,883	)		—
Accretion of redeemable preferred stock		(26	)		(26	)		(77	)		(77	)
Cumulative preferred stock dividends		(7,254	)		(8,694	)		(25,020	)		(25,573	)
(Loss) income attributable to common stockholders – basic	$	(12,500	)	$	(8,432	)	$	(4,347	)	$	48,236
Denominator:
Basic weighted average shares		525,349			519,876			523,296			518,095
Outstanding options		—			—			—			13,963
Diluted weighted average shares		525,349			519,876			523,296			532,058
Basic and diluted (loss) income per share:
Basic and diluted (loss) income per share	$	(0.02	)	$	(0.02	)	$	(0.01	)	$	0.09

Due to their antidilutive effect, the following potential common shares have been excluded from the computation of diluted (loss) income per share:


	Thirteen Week Period Ended				Thirty-Nine Week Period Ended
	November 26, 2005		November 27, 2004		November 26, 2005		November 27, 2004
Stock options		67,953		65,497		67,953		17,509
Convertible preferred stock		112,704		80,614		112,704		80,614
Convertible debt		38,462		38,462		38,462		38,462
		219,119		184,573		219,119		136,585

4. Store Closing and Impairment Charges

Store closing and impairment charges consist of:


	Thirteen Week Period Ended					Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004		November 26, 2005		November 27, 2004
Impairment charges	$	3,517		$	782	$	10,321	$	1,681
Store and equipment lease exit (credits) charges		(865	)		1,615		15,984		9,582
	$	2,652		$	2,397	$	26,305	$	11,263

Impairment charges

Impairment charges include non-cash charges of $3,517 and $782 for the thirteen week periods ended November 26, 2005 and November 27, 2004, respectively, for the impairment of long-lived assets at 28 and 13 stores, respectively. Impairment charges include non-cash charges of $10,321 and $1,681 for the thirty-nine week periods ended November 26, 2005 and November 27, 2004, respectively, for the impairment of long-lived assets at 62 and 35 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. These impairment charges do not include any asset write-downs related to the stores impacted by Hurricane Katrina that are described in Note 13.

Store and equipment lease exit (credits) charges

During the thirteen week periods ended November 26, 2005 and November 27, 2004, the Company recorded (credits) charges for 5 stores and 4 stores, respectively. During the thirty-nine week periods ended November 26, 2005 and November 27, 2004, the Company recorded charges for 17 and 10 stores, respectively. The Company has not recorded any closed store charges related to stores impacted by Hurricane Katrina, since a final decision as to whether to reopen these stores has not been made. 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’’. 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 amounts of the closed store charges that relate to new closures, changes in assumptions, and interest accretion are presented in the following table.

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


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
Balance – beginning of period	$	219,952		$	241,334		$	220,903		$	254,361
Provision for present value of noncancellable lease payments of store closings		841			1,858			11,745			13,848
Changes in assumptions about future sublease income, terminations and changes in interest rates		(3,897	)		(1,225	)		(1,989	)		(7,635	)
Reversals of reserves for stores that management has determined will remain open		—			(858	)		(271	)		(2,137	)
Interest accretion		2,193			1,994			6,526			6,139
Cash payments, net of sublease income		(9,223	)		(10,053	)		(27,048	)		(31,526	)
Balance – end of period	$	209,866		$	233,050		$	209,866		$	233,050

The Company's revenues and income from operations for the thirteen and thirty-nine week periods ended November 26, 2005 and November 27, 2004 include results from stores that have been closed as of November 26, 2005. The revenue and operating losses of these stores for the periods are presented as follows:


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
Revenues	$	12,981		$	50,686		$	79,933		$	169,797
Loss from operations		(3,040	)		(2,446	)		(7,514	)		(5,913	)

Included in these stores’ loss from operations for the thirteen weeks ended November 26, 2005 and November 27, 2004, are depreciation and amortization charges of $182 and $460 and closed store liquidation charges of $2,609 and $2,454, respectively. Included in these stores’ loss from operations for the thirty-nine weeks ended November 26, 2005 and November 27, 2004, are depreciation and amortization charges of $751 and $1,621 and closed store liquidation charges of $6,213 and $5,849, 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. Accounts Receivable

The Company maintains securitization agreements with several multi-seller asset-backed commercial paper vehicles. Under the terms of the securitization agreements, the Company sells substantially all of its eligible third party pharmaceutical receivables to a bankruptcy remote Special Purpose Entity (SPE) and retains servicing responsibility. The assets of the SPE are not available to satisfy the creditors of any other person, including any of the Company’s affiliates. These agreements provide for the Company to sell, and for the SPE to purchase these receivables, and for the SPE to borrow funds secured by these receivables of up to $400,000. The amount of receivables funded at any one time is dependent upon a formula that takes into account such factors as default history, obligor concentrations and potential dilution. Adjustments to this amount can occur on a weekly basis. At November 26, 2005 and February 26, 2005, proceeds from the sale of receivables to the SPE totaled $345,000 and $150,000, respectively. The average proceeds from the sale of receivables during the thirteen and thirty-nine week periods ended November 26, 2005 are $313,736 and $226,703 respectively. The average proceeds from the sale of receivables during the thirteen and thirty-nine week periods ended November 27, 2004 was $310,956. Receivables sold to the SPE for the thirteen and thirty-nine week period ended November 26, 2005 totaled $1,968,198 and $5,910,824. Receivables sold to the SPE for the thirteen and thirty-nine week periods ended November 27, 2004 totaled $2,041,453. Collections reinvested in securitizations amounted to $1,957,574 and $5,926,960 for the thirteen and thirty-nine week periods ended November 26, 2005 and $1,480,524 for the thirteen and thirty-nine week periods ended November 27, 2004. At November 26, 2005 and February 26, 2005, the Company retained an interest in the third party pharmaceutical receivables in the form of overcollateralization of $186,992 and $426,433, respectively, which is included in accounts receivable, net, on the consolidated balance sheet at allocated cost, which approximates fair value.

The Company must pay an ongoing program fee of approximately LIBOR plus 1.125% on the amount sold to the SPE under the securitization agreements and must pay a liquidity fee of 0.375% on the daily unused amount under the securitization agreements. The program and the liquidity fees are recorded as a component of selling, general and administrative expenses. Program and liquidity fees for the thirteen and thirty-nine week periods ended November 26, 2005 were $4,004 and $8,444 respectively. Fees for the thirteen and thirty-nine week periods ended November 27, 2004 were $1,825. Rite Aid Corporation guarantees certain performance obligations of its affiliates under the securitization agreements, but does not guarantee the collectibility of the receivables and obligor creditworthiness.

The vehicles that purchase receivables from the SPE have a commitment to purchase that ends September 2006 with the option to annually extend the commitment to purchase. Should any of the vehicles fail to renew their commitment, the Company has access to a backstop credit facility, which is backed by the entities that make loans to the SPE’s. The backstop facility is committed through September 2007.

Proceeds from the collections under the receivables securitization agreements are submitted to an independent trustee on a daily basis. The trustee withholds any cash necessary to fund overdraws on the facility and to pay trustee fees. Overdraws on the facility occur when the daily borrowing formula is less than current proceeds from the receivable sale. The remaining collections are swept to the Company’s corporate concentration account. At November 26, 2005 and February 26, 2005, the Company had $2,228 and $760 of cash, respectively, that was restricted for the payment of program and trustee fees.

The Company has concluded that the transactions meet the criteria for sales treatment in accordance with SFAS No. 140 ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.’’ Additionally, the Company has concluded that consolidation is not appropriate in accordance with FIN 46R, ‘‘Consolidation of Variable Interest Entities.’’

6. Sale Leaseback Transaction

During the thirty-nine week period ended November 26, 2005, the Company sold the land and buildings on a total of 28 owned stores to independent third parties. Net proceeds from these sales were $77,857. Concurrent with these sales, the Company entered into agreements to lease the stores back from the purchasers over minimum lease terms of 20 years. The Company accounted for 27 of these leases as operating leases, which includes one lease previously precluded from sale leaseback accounting due to a form of continuing involvement. This continuing involvement no longer exists. A gain on the sale of these stores of $14,552 has been deferred and is being recorded over the minimum term of these leases. Losses of $987 were recorded as losses on the sale of assets and investments for the period ended November 26, 2005. The Company accounted for the remaining lease as a capital lease, as the lease agreement contains a clause that allows the buyer to require the Company to repurchase the property under certain conditions. The Company has recorded a capital lease obligation of approximately $2,324 related to this lease. Future scheduled minimum lease payments under these leases for the remainder of fiscal 2006 and the succeeding four fiscal years are as follows: 2006 – $1,626; 2007 – $6,503; 2008 – $6,503; 2009 – $6,503; 2010 – $6,503 and $106,800 in 2011 and thereafter.

During the thirty-nine week period ended November 27, 2004, the Company sold the land and buildings on 21 owned stores to a third party. Net proceeds from this sale were $53,800. The Company entered in an agreement to lease these stores back from the purchaser over a minimum lease term of 20 years. The Company accounted for these leases as operating leases. A gain on the transaction of $3,800 has been deferred and is being recorded over the minimum lease term. A loss of $1,500, which relates to certain stores in the transaction portfolio, was recorded as a loss on sale of fixed assets in the thirty-nine week period ended November 27, 2004.

7. Goodwill and Other Intangibles

The Company evaluates goodwill for impairment on an annual basis at the end of its fiscal year. 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 November 26, 2005 and February 26, 2005.


	November 26, 2005						February 26, 2005
	Gross Carrying Amount		Accumulated Amortization			Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Weighted Average Amortization Period
Favorable leases and other	$	308,988	$	(196,657	)	18 years	$	311,635	$	(191,482	)	20 years
Prescription files		395,712		(321,683	)	12 years		369,425		(310,098	)	13 years
Total	$	704,700	$	(518,340	)		$	681,060	$	(501,580	)

Amortization expense for these intangible assets was $8,361 and $23,350 for the thirteen and thirty-nine weeks ended November 26, 2005. Amortization expense for these intangible assets was $6,830 and $20,426 for the thirteen and thirty-nine weeks ended November 27, 2004. The anticipated annual amortization expense for these intangible assets is 2006 – $31,624; 2007 – $31,013; 2008 – $28,394; 2009 – $24,552; and 2010-$19,307.


8.	Income Taxes

The Company recorded an income tax benefit of $1,079 and income tax expense of $10,635 for the thirteen and thirty-nine week periods ended November 26, 2005 and income tax expense of $5,362 and $11,139 for the thirteen and thirty-nine week periods ended November 27, 2004.

The provision for federal and state and local income taxes for the thirty-nine week period ended November 26, 2005 is net of the results from the receipt of a federal refund claim of $7,848 which related to the fiscal 2004 conclusion of the Internal Revenue Service examination for fiscal years 1996 through 2000.

The provision for income taxes for the thirty-nine week period ended November 27, 2004 is for state and local income taxes. The federal income tax expense was fully offset by utilization of net operating loss carryforwards resulting in the reduction of previously recorded valuation allowances.

The Company regularly evaluates valuation allowances established for deferred tax assets for which future realization is uncertain. Management will continue to monitor all available evidence related to the remaining net deferred tax assets at least annually at the end of each fiscal year and at such time as events have occurred or are anticipated to occur that may change the most recent assessment. The estimation of required valuation allowances is based on a number of factors including the Company’s historical operating performance and its expectation that it can generate sustainable consolidated taxable income for the foreseeable future. As a result of the Company’s operating performance in fiscal 2005 and the more favorable near term outlook for profitability, a portion of the valuation allowance was reduced in the fourth quarter of 2005. The Company continues to maintain a valuation allowance against remaining net deferred tax assets.

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.

9. Indebtedness and Credit Agreements

General

Following is a summary of indebtedness and lease financing obligations at November 26, 2005 and February 26, 2005:


	November 26, 2005			February 26, 2005
Secured Debt:
Senior secured revolving credit facility due September 2010	$	530,000		$	—
Senior secured credit facility term loan due September 2009		—			448,875
12.5% senior secured notes due September 2006 ($142,025 face value less unamortized discount of $1,429 and $2,599)		140,596			139,426
8.125% senior secured notes due May 2010 ($360,000 face value less unamortized discount of $3,001 and $3,501)		356,999			356,499
9.5% senior secured notes due February 2011		300,000			300,000
7.5% senior secured notes due January 2015		200,000			200,000
Other		2,164			2,338
		1,529,759			1,447,138
Lease Financing Obligations		174,712			168,285
Unsecured Debt:
7.625% senior notes due April 2005		—			170,500
6.0% fixed-rate senior notes due December 2005		38,047			38,047
4.75% convertible notes due December 2006 ($250,000 face value less unamortized discount of $1,375 and $2,500)		248,625			247,500
7.125% notes due January 2007		184,074			184,074
11.25% senior notes due July 2008		—			150,000
6.125% fixed-rate senior notes due December 2008		150,000			150,000
9.25% senior notes due June 2013 ($150,000 face value less unamortized discount of $1,801 and $1,981)		148,199			148,019
6.875% senior debentures due August 2013		184,773			184,773
7.7% notes due February 2027		295,000			295,000
6.875% fixed-rate senior notes due December 2028		128,000			128,000
		1,376,718			1,695,913
Total		3,081,189			3,311,336
Current maturities of long-term debt and lease financing obligations		(188,684	)		(223,815	)
Long-term debt, convertible notes and lease financing obligations, less current maturities	$	2,892,505		$	3,087,521

Credit Facility

On September 30, 2005, the Company amended its senior secured credit facility. The amended senior secured credit facility consists solely of a $1,750,000 revolving credit facility. At November 26, 2005, the amount outstanding on the revolver was $530,000. Borrowings under the amended senior secured credit facility currently bear interest at LIBOR plus 1.50%, if the Company chooses to make LIBOR borrowings, or at Citibank’s base rate plus 0.50%. The interest rate can fluctuate depending upon the amount of the revolver availability, as specified in the amended senior secured credit facility. The Company is required to pay fees of 0.25% per annum on the daily unused amount of the revolving credit facility. Full amounts drawn on the amended revolving credit facility become due and payable in September 2010.

The amended senior secured credit facility allows the Company to have outstanding, at any time, up to $1,800,000 in secured subordinated debt in addition to the amended senior secured credit facility

(which amount is reduced by any additional unsecured debt that matures prior to December 31, 2010, as described below). The Company has the ability to incur additional unsecured debt of up to $750,000 with a scheduled maturity date prior to December 31, 2010. The maximum amount of additional secured subordinated debt and unsecured debt with a maturity prior to December 31, 2010 that can be incurred is $1,800,000. At November 26, 2005, remaining additional permitted secured subordinated debt under the amended senior secured credit facility was $797,975 in addition to what is available under the revolver; however, other debentures do not permit additional secured debt if the revolver is fully drawn. The amended senior secured credit facility allows the Company to incur an unlimited amount of unsecured debt with a maturity beyond December 31, 2010; however other debentures limit the amount of unsecured debt that can be incurred if certain interest coverage ratio levels are not met at the time of incurrence of said debt. The amended senior secured facility also allows for the repurchase of any debt with a maturity on or before September 2010, and for the repurchase of debt with a maturity after September 2010, if the Company maintains availability on the revolving credit facility of at least $100,000.

The amended senior secured credit facility contains customary covenants, which place restrictions on the incurrence of debt beyond the restrictions described above, the payments of dividends, mergers and acquisitions and the granting of liens. The amended senior secured credit facility also requires the Company to maintain a minimum fixed charge coverage ratio, but only if availability on the revolving credit facility is less than $100,000.

The amended 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 the Company fails to make any required payment on debt having a principal amount in excess of $50,000 or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity of such debt.

The Company’s ability to borrow under the amended senior secured credit facility is based upon a specified borrowing base consisting of inventory and prescription files. At November 26, 2005, the Company had $530,000 of borrowings outstanding under the revolving credit facility. At November 26, 2005, the Company also had letters of credit outstanding against the revolving credit facility of $110,689, which gave the Company additional borrowing capacity of $1,109,311.

Other Transactions

On December 15, 2005, the Company paid at maturity the remaining outstanding principal amount of $38,047 of its 6.0% fixed rate senior notes due December 2005.

On July 15, 2005, the Company completed the early redemption of all of its outstanding $150,000 aggregate principal amount of 11.25% notes due July 2008 at their contractually determined early redemption price of 105.625%. The Company funded this redemption with borrowings under its receivable securitization agreements. The Company recorded a loss on debt modification in the thirty-nine week period ended November 26, 2005 of $9,186 related to this transaction.

On April 15, 2005, the Company paid at maturity the remaining outstanding principal amount of $170,500 of its 7.625% senior notes due April 2005.

In September 2004, the Company replaced its senior secured credit facility due April 2008 with an amended senior secured credit facility due September 2009. As a result of the placement of this facility, the Company recorded a loss on debt modification in the thirteen and thirty-nine week periods ended November 27, 2004 of $20,216.

During the thirty-nine week period ended November 27, 2004, the Company made open market purchases of the following securities:


Debt Redeemed	Principal Amount Redeemed		Amount Paid		Gain / (loss)
7.625% notes due 2005	$	27,500	$	28,275	$	(795	)
7.125% notes due 2007		26,000		26,548		(605	)
6.875% fixed rate senior notes due 2028		12,000		9,660		2,191
Total	$	65,500	$	64,483	$	791

The gain on the transactions listed above is recorded as part of the loss on debt modifications in the accompanying statement of operations for the thirty-nine week period ended November 27, 2004.

Other

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2006 and the succeeding four fiscal years are as follows: 2006-$38,261; 2007-$573,731; 2008-$632; 2009-$150,329; 2010-$120; and $2,143,404 in 2011 and thereafter. At November 26, 2005, the Company was in compliance with restrictions and limitations included in the provisions of various loan and credit agreements.

Substantially all of Rite Aid Corporation’s wholly-owned subsidiaries guarantee the obligations under the amended 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 due under the amended senior secured credit facility. Rite Aid Corporation’s direct obligations under the amended senior secured credit facility are unsecured. The 12.5% senior secured notes due 2006, the 9.5% senior secured notes due 2011, the 8.125% senior secured notes due 2010 and the 7.5% senior secured notes dues 2015 are guaranteed by substantially all of the Company’s wholly-owned subsidiaries and are secured on a second priority basis by the same collateral as the amended senior secured credit facility.

The subsidiary guarantees related to the Company’s amended 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 amended senior secured credit facility and bond issuances are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not presented.

10. Preferred Stock Transactions

During the thirty-nine week period ended November 26, 2005, the Company issued 4,820 shares of Series I Mandatory Convertible Preferred Stock (‘‘Series I preferred stock’’) at an offering price of $25 per share. Dividends on the Series I preferred stock are $1.38 per share per year, and are due and payable on a quarterly basis in either cash or common stock of the Company or a combination of both at the Company’s election. The Series I preferred stock will automatically convert into common stock on November 17, 2008 at a rate that is dependent upon the adjusted applicable market value of the Company’s common stock (as defined in the Series I Certificate of Designations). If the adjusted applicable market value of the Company’s common stock is $5.30 per share or higher at the

conversion date, then the Series I preferred stock is convertible at a rate of 4.7134 shares of the Company’s common stock for every share of Series I preferred stock outstanding. If the adjusted applicable market value of the Company’s common stock is less than or equal to $4.42 per share at the conversion date, then the Series I preferred stock is convertible at a rate of 5.6561 shares of the Company’s common stock for every share of Series I preferred stock outstanding. If the adjusted applicable market value of the Company’s common stock is between $4.42 per share and $5.30 per share at the conversion date, then the Series I preferred stock is convertible into common stock at a rate that is between 4.7134 and 5.6561 per share. The holder may convert shares of the Series I preferred stock into common stock at any time prior to the mandatory conversion date at the rate of 4.7134 per share. The Series I preferred stock is also convertible at the Company’s option, but only if the adjusted applicable market value of the Company’s common stock exceeds $9.55. If the Company is subject to a cash acquisition (as defined in the Certificate of Designations) prior to the mandatory conversion date, the holder may elect to convert the shares of Series I preferred stock into shares of common stock using a conversion rate set forth in the Certificate of Designations. The holder will also receive a payment equal to the present value of all scheduled dividends through the mandatory conversion date.

Proceeds from the issuance of the Series I preferred stock, along with borrowings under the amended senior secured credit facility, were used to redeem all of the Company’s shares of its Series F preferred stock, at 105% of the liquidation preference of $100 per share. The Company paid a premium to redeem the Series F preferred stock of $5,883, which was recorded as an increase in the accumulated deficit. This premium reduces net income available to common stockholders for the thirty-nine week period ended November 26, 2005. The Company's Series F preferred stock was held by Green Equity Investors, III, L.P., a related party of the Company.

11. Retirement Plans

Net periodic pension expense recorded in the thirteen and thirty-nine week periods ended November 26, 2005 and November 27, 2004, respectively, for the Company's defined benefit plans includes the following components:


	Defined Benefit Pension Plan						Nonqualified Executive Retirement Plans				Defined Benefit Pension Plan						Nonqualified Executive Retirement Plans
	Thirteen Week Period Ended										Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004			November 26, 2005		November 27, 2004		November 26, 2005			November 27, 2004			November 26, 2005		November 27, 2004
Service cost	$	636		$	711		$	19	$	18	$	2,010		$	2,132		$	57	$	53
Interest cost		975			1,200			305		246		3,327			3,600			914		738
Expected return on plan assets		(975	)		(611	)		—		—		(2,053	)		(1,832	)		—		—
Amortization of unrecognized net transition obligation		—			—			21		22		—			—			63		65
Amortization of unrecognized prior service cost		211			175			—		—		457			525			—		—
Amortization of unrecognized net loss		182			475			34		89		1,408			1,425			102		267
Net pension expense	$	1,029		$	1,950		$	379	$	375	$	5,149		$	5,850		$	1,136	$	1,123

The company expects to contribute $11,490 to the Defined Benefit Pension Plan and $2,240 to the Nonqualified Executive Retirement Plans during fiscal year 2006.

12. Commitments And Contingencies

Federal Investigation

There are currently pending federal government 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 the Company 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 fiscal 2003 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. The Company 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.

Other

In June 2000, the Company was 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 Lemelson Foundation has brought similar suit against a significant number of major U.S. retailers. 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.

13. Effect of Hurricane Katrina

On August 29, 2005, Hurricane Katrina made landfall in Louisiana and proceeded to move through Mississippi and Alabama, causing one of the worst natural disasters in the history of the United States. As of November 26, 2005, the Company had 18 stores that remained closed, of which 5 are functioning out of trailers. The Company expects these 5 stores to re-open prior to the end of fiscal 2006. The Company is still assessing whether to rebuild or re-open the remaining 13 stores, and does not expect these stores to be re-opened or rebuilt until sometime in fiscal 2007 or after.

During the thirty-nine week period ended November 26, 2005, the Company incurred costs and damages related to Hurricane Katrina of $23,765. These costs and damages included the write-off of inventory and long-lived assets, relief and other payments to associates and other clean-up costs. The Company maintains insurance coverage which provides for reimbursement from losses resulting from property damage, including flood, loss of product and business interruption. The Company had recorded a receivable of $23,765 as of November 26, 2005 for insurance recoveries related to the Hurricane Katrina losses that have been incurred based on the determination that the realization of an insurance claim sufficient to cover these losses is probable. In December 2005, the Company received a partial payment on this claim of $16,800. The Company is unable to determine the amount and timing of any future insurance recoveries in excess of the receivable currently recorded.

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

Overview

General: Net loss for the thirteen week period ended November 26, 2005 was $5.2 million. Net income for the thirteen week period ended November 27, 2004 was $0.3 million. Our operating results for the thirteen week period ended November 26, 2005 were negatively impacted primarily by an increase in the level of selling, general and administrative expenses (‘‘SG&A’’) relative to sales and a decrease in litigation income. These negative items were primarily offset by the absence of a loss on debt modification and by a decrease in interest expense. These items are discussed in more detail in the Results of Operations and the Liquidity and Capital Resources sections that follow.

Net income for the thirty-nine week periods ended November 26, 2005 and November 27, 2004 was $26.6 million and $73.9 million, respectively. Our operating results for the thirty-nine week period ended November 26, 2005 were negatively impacted primarily by increases in the level of SG&A expense relative to sales and an increase in store closing and impairment charges. The impact of these items was somewhat offset by an increase in gross margin rate, a decrease in the loss on debt modifications and retirement and a decrease in interest expense. These items are discussed in more detail in the Results of Operations and Liquidity and Capital Resources sections that follow.

Sales Trends: Our revenue growth for the thirty-nine weeks ended November 26, 2005 compared to the thirty-nine weeks ended November 27, 2004 was 0.2%. Factors affecting our revenue are discussed more thoroughly in the Results of Operations section of this Item 2. Significant factors negatively impacting our revenue were decreases in certain categories of drugs following the public announcements regarding the safety of those drugs and the continuing penetration of mail order prescription programs, particularly the mandatory mail program that the United Auto Workers implemented between January and June 2004. We are taking steps to offset these negative factors by working to increase sales at our existing stores through improved customer service and developing new stores in our strongest markets. These initiatives contributed to a 0.9% revenue increase in the thirteen week period ended November 26, 2005 compared to the thirteen week period ended November 27, 2004. However, we expect our revenue results to continue to face significant pressures from the existing competitive environment.

Hurricane Katrina: On August 29, 2005, Hurricane Katrina made landfall in Louisiana and proceeded to move through Mississippi and Alabama, causing one of the worst natural disasters in the history of the United States. As of November 26, 2005, we had 18 stores that remained closed, of which 5 are functioning out of trailers. We expect these 5 stores to re-open prior to the end of fiscal 2006. We are still assessing whether to rebuild or re-open the remaining 13 stores, and do not expect these stores to be re-opened or rebuilt until sometime in fiscal 2007 or after.

During the thirty-nine week period ended November 26, 2005, we incurred costs and damages related to Hurricane Katrina of $23.8 million. These costs and damages included the write-off of inventory and long-lived assets, relief and other payments to associates and other clean-up costs. We maintain insurance coverage which provides for reimbursement from losses resulting from property damage, including flood, loss of product and business interruption. We recorded a receivable of $23.8 million as of November 26, 2005 for insurance recoveries related to the Hurricane Katrina losses that have been incurred based on our determination that the realization of an insurance claim sufficient to cover these losses is probable. In December 2005, we received a partial payment on this claim of $16.8 million.

The impact of Hurricane Katrina on our sales and operating results was not material.

Results Of Operations

Revenues and Other Operating Data


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
	(dollars in thousands)
Revenues	$	4,145,683		$	4,107,336		$	12,499,642		$	12,475,599
Revenue growth		0.9	%		0.0	%		0.2	%		2.2	%
Same store sales growth		1.7	%		0.2	%		0.6	%		2.5	%
Pharmacy sales growth (decline)		0.1	%		(0.1	)%		(0.8	)%		2.3	%
Same store pharmacy sales growth (decline)		0.7	%		0.1	%		(0.5	)%		2.5	%
Pharmacy sales as a % of total sales		63.8	%		64.3	%		63.6	%		64.2	%
Third party sales as a % of total pharmacy sales		94.1	%		93.4	%		94.0	%		93.5	%
Front-end sales growth		2.4	%		0.0	%		1.9	%		2.0	%
Same store front-end sales growth		3.4	%		0.3	%		2.6	%		2.4	%
Front-end sales as a % of total sales		36.2	%		35.7	%		36.4	%		35.8	%
Store data:
Total stores (beginning of period)		3,345			3,370			3,356			3,382
New stores		8			2			10			3
Closed stores		(22	)		(9	)		(38	)		(25	)
Store acquisitions, net		2			—			5			3
Total stores (end of period)		3,333			3,363			3,333			3,363
Relocated stores		8			4			20			9
Remodeled stores		53			46			161			151

Revenues

Revenue growth was 0.9% and 0.2% for the thirteen and thirty-nine week periods ended November 26, 2005. Pharmacy growth was 0.1% for the thirteen week period ended November 26, 2005. Pharmacy sales declined by 0.8% in the thirty-nine week period ended November 26, 2005. Front-end sales grew by 2.4% and by 1.9% in the thirteen and thirty-nine week periods ended November 26, 2005.

Pharmacy same store sales increased 0.7% for the thirteen week period ended November 26, 2005 and decreased by 0.5% for the thirty-nine week period ended November 26, 2005. The pharmacy same store sales increase for the thirteen week period ended November 26, 2005 was due to product inflation, offset by an increase in generic sales mix, lower reimbursement rates and a decrease in the number of prescriptions filled. The decrease in the number of prescriptions filled was due primarily to certain third party payors requiring or encouraging customers to use mail order, competitor growth in our markets, changes in medicaid coverages and safety concerns in antiarthritic, psychotherapeutic and hormone therapy prescriptions. The pharmacy same store sales decrease for the thirty-nine week period ended November 26, 2005 was driven by an increase in the generic sales mix, which sell for less than branded products but have higher margins, lower inflation and a decrease in the number of prescriptions filled. The decrease in the number of prescriptions filled was due primarily to certain third party payors requiring or encouraging customers to use mail order and safety concerns in antiarthritic, psychotherapeutic and hormone therapy prescriptions.

Front-end same store sales increased 3.4% and 2.6% for the thirteen and thirty-nine week periods ended November 26, 2005, respectively, primarily as a result of improvement in our core categories such as over-the-counter, health and beauty care and consumable and food products partially offset by a decrease in photo and film sales.

Revenues were flat for the thirteen week period ended November 27, 2004, and grew by 2.2% for the thirty-nine week period ended November 27, 2004. Pharmacy sales declined by 0.1% and grew by

2.3% in the thirteen and thirty-nine week periods ended November 27, 2004, while front-end sales were flat in the thirteen week period ended November 27, 2004 and grew 2.0% in the thirty-nine week period ended November 27, 2004.

Pharmacy same store sales increased 0.1% and 2.5% for the thirteen and thirty-nine week periods ended November 27, 2004, respectively, due to an increase in sales price per prescription. These increases were driven by inflation, offset by an increase in generic sales mix and lower reimbursement rates. Offsetting the increase in price per prescription was a decrease in the number of prescriptions filled in the thirteen and thirty-nine week periods ended November 27, 2004 compared to the prior year. This reduction was due primarily to certain third-party payors requiring or encouraging customers to use mail order, a reduction in hormone therapy prescriptions, the movement of certain prescription drugs to over-the-counter, and a slower start to the cold and flu season than in the prior year. The lower rate of increase in the thirteen week period ended November 27, 2004 was also partially attributable to our Southern California stores cycling the increase in business in last year's comparable period related to the union strike at several grocery store chains.

Front-end same store sales increased 0.3% and 2.4% for the thirteen and thirty-nine week periods ended November 27, 2004, respectively, primarily as a result of improvement in our consumable categories, partially offset by a decrease in photo and film sales, sales decreases in categories negatively affected by a slow start to the cough/cold/flu season and decreased traffic in mail order effected stores. The lower rate of increase in the thirty-nine week period ended November 27, 2004 was attributable to decreases in customer visits due to the customer obtaining their prescription through mail order as opposed to pick-up at our stores and our Southern California stores cycling the increased business in last year's comparable period related to the union strike at several grocery store chains.

We include in same store sales all stores that have been open at least one year. Stores in liquidation are considered closed. Relocated stores are not included in same store sales.

Costs and Expenses


	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
	(dollars in thousands)
Cost of goods sold, including occupancy costs	$	3,127,776		$	3,098,555		$	9,386,317		$	9,388,222
Gross profit		1,017,907			1,008,781			3,113,325			3,087,377
Gross margin		24.6	%		24.6	%		24.9	%		24.7	%
Selling, general and administrative expenses		956,017			909,016			2,839,158			2,748,014
Selling, general and administrative expenses as a percentage of revenues		23.1	%		22.1	%		22.7	%		22.0	%
Store closing and impairment charges		2,652			2,397			26,305			11,263
Interest expense		66,909			70,653			205,273			224,973
Loss on debt and lease conversions and modifications and retirements, net		—			20,216			9,186			19,425
(Gain) loss on sale of assets and investments, net		(1,372	)		849			(3,865	)		(1,323	)

Cost of Goods Sold

Gross margin was 24.6% for the thirteen week periods ended November 26, 2005 and November 27, 2004. Gross margin benefited from higher pharmacy margins, driven by an improvement in generic prescription mix and reduced inventory costs resulting from purchasing improvements. These improvements were offset by an increase in occupancy expense caused by additional rent on owned stores that have been sold and leased back and an increase in LIFO charges. Front end gross margin contribution was flat compared to prior year.

Gross margin was 24.9% for the thirty-nine week period ended November 26, 2005 compared to 24.7% for the thirty-nine week period ended November 27, 2004. Gross margin benefited from higher

pharmacy margins, driven by an improvement in generic prescription mix and reduced inventory costs resulting from purchasing improvements. This was somewhat offset by a decrease in front end gross margin, due to an increase in circular markdowns.

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 LIFO charges of $7.6 million and $22.8 million for the thirteen and thirty-nine week periods ended November 26, 2005 versus LIFO charges of $5.8 million and $17.3 million for the thirteen and thirty-nine week periods ended November 27, 2004.

Selling, General and Administrative Expenses

SG&A as a percentage of revenues was 23.1% in the thirteen week period ended November 26, 2005 compared to 22.1% in the thirteen week period ended November 27, 2004. The increase in SG&A as a percentage of revenues for the thirteen week period ended November 26, 2005 was driven by increases in salaries and benefits, advertising expense, utility expense, securitization program fees and a decrease in litigation settlement income.

SG&A as a percentage of revenues was 22.7% in the thirty-nine week period ended November 26, 2005 compared to 22.0% in the thirty-nine week period ended November 27, 2004. The increase in SG&A as a percentage of revenues for the thirty-nine week period ended November 26, 2005 was due to increases in salaries and benefits, utility expenses, advertising expenses, and securitization program fees.

Store Closing and Impairment Charges

Store closing and impairment charges consist of:


	Thirteen Week Period Ended					Thirty-Nine Week Period
	November 26, 2005			November 27, 2004		November 26, 2005		November 27, 2004
	(dollars in thousands)
Impairment charges	$	3,517		$	782	$	10,321	$	1,681
Store and equipment lease exit (credits) charges		(865	)		1,615		15,984		9,582
	$	2,652		$	2,397	$	26,305	$	11,263

Impairment Charges: Impairment charges include non-cash charges of $3.5 million and $0.8 million in the thirteen week periods ended November 26, 2005 and November 27, 2004, respectively, for the impairment of long-lived assets at 28 and 13 stores, respectively. Impairment charges include non-cash charges of $10.3 million and $1.7 million in the thirty-nine week periods ended November 26, 2005 and November 27, 2004, respectively, for the impairment of long-lived assets at 62 and 35 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. These impairment charges do not include any asset writedowns related to Hurricane Katrina.

Store and Equipment Lease Exit (Credits) Charges: During the thirteen week periods ended November 26, 2005 and November 27, 2004, we recorded (credits) charges for 5 stores and 4 stores, respectively, to be closed or relocated under long-term leases. During the thirty-nine week periods ended November 26, 2005 and November 27, 2004, we recorded charges for 17 and 10 stores, respectively, to be closed or relocated under long-term leases. We have not recorded any closed store charges related to stores impacted by Hurricane Katrina, since we have not made a decision as to whether to re-open these stores. 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.’’ 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 credit recorded for the thirteen week period ended November 26, 2005 was due to increases in the risk free rate that is used to discount the closed store reserve. The increase in closed store charges for the thirty-nine week period ended November 26, 2005 was due to decreases in the risk free rate that is used to discount the closed store reserve.

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 $66.9 million and $205.3 million for the thirteen and thirty-nine week periods ended November 26, 2005, compared to $70.7 million and $225.0 million for the thirteen and thirty-nine week periods ended November 27, 2004. The decrease for the thirteen and thirty-nine week periods ended November 26, 2005 was due to decreases in outstanding borrowings, a lower interest rate from our amended senior secured credit facility and the July 2005 redemption of our 11.25% Senior Notes due 2008. After taking into effect the terms of the amended senior secured credit facility, and assuming no further changes in LIBOR rates, we expect interest expense for the remainder of the year to be approximately $68.4 million. The weighted average interest rates, excluding capital leases, on our indebtedness for both the thirty-nine week periods ended November 26, 2005 and November 27, 2004, was 7.4% and 7.0% respectively.

Income Taxes

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We will continue to monitor all available evidence related to our remaining net deferred tax assets at least annually at the end of each fiscal year and at such time as events have occurred or are anticipated to occur that may change our most recent assessment. The estimation of required valuation allowances is based on a number of factors including our historical operating performance and our expectation that we can generate sustainable consolidated taxable income for the foreseeable future. As a result of our operating performance in fiscal 2005 and the more favorable near term outlook for profitability, a portion of the valuation allowance was reduced in the fourth quarter of 2005. Should we determine at year end that it is more likely than not that we will realize additional deferred tax assets in the future, an additional adjustment would be required. Although the final outcome of this evaluation cannot be quantified at this time, a further reduction of the valuation allowance against our deferred tax assets is possible.

The provision for federal and state and local income taxes for the thirty-nine week period ended November 26, 2005 was net of the results from the receipt of a federal refund claim of $7.8 million which related to the conclusion in fiscal 2004 of the Internal Revenue Service examination for fiscal years 1996 through 2000. We expect to pay minimal cash taxes for the foreseeable future as we have approximately $2.3 billion of net operating losses available to offset future income.

The provision for income taxes for the thirty-nine week period ended November 27, 2004 was for state and local income taxes. The federal income tax expense was fully offset by utilization of net operating loss carryforwards resulting in the reduction of previously recorded valuation allowances.

Liquidity and Capital Resources

General

We have five primary sources of liquidity: (i) cash equivalent investments, (ii) cash provided by operating activities, (iii) the sale of accounts receivable under our securitization agreements, (iv) the revolving credit facility under our amended senior secured credit facility and (v) sale leasebacks of

owned property. Our principal uses of cash are to provide working capital for operations, to service our obligations to pay interest and principal on debt, to provide funds for capital expenditures and to provide funds for repurchase of our publicly traded debt.

Credit Facility

On September 30, 2005, we amended our senior secured credit facility. At November 26, 2005, the amount outstanding on the revolver was $530.0 million. The amended senior credit facility consists solely of a $1.75 billion revolving credit facility. Borrowings under the amended senior secured credit facility currently bear interest at LIBOR plus 1.50%, if we choose to make LIBOR borrowings, or at Citibank’s base rate plus 0.50%. The interest rate can fluctuate depending on the amount of revolver availability, as specified in the amended senior secured credit facility. We are required to pay fees of 0.25% per annum on the daily unused amount of the amended revolving credit facility.

The amended senior secured credit facility allows us to have outstanding, at any time, up to $1.8 billion in secured subordinated debt in addition to the amended senior secured credit facility (which amount is reduced by any additional unsecured debt that matures prior to December 31, 2010, as described below). We have the ability to incur additional unsecured debt of up to $750.0 million with a scheduled maturity date prior to December 31, 2010. The maximum amount of additional secured subordinated debt and unsecured debt with a maturity prior to December 13, 2010 that can be incurred is $1.8 billion. At November 26, 2005, remaining additional permitted secured subordinated debt under the amended senior secured credit facility was $798.0 million in addition to what is available under the revolver; however, other debentures do not permit additional secured debt if the revolver is fully drawn. The amended senior secured credit facility allows us to incur an unlimited amount of unsecured debt with a maturity beyond December 31, 2010; however other debentures limit the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence of said debt. The amended senior secured facility also allows for the repurchase of any debt with a maturity on or before September 2010, and for the repurchase of debt with a maturity after September 2010, if we maintain availability on the revolving credit facility of at least $100.0 million.

The amended senior secured credit facility contains customary covenants, which place restrictions on the incurrence of debt beyond the restrictions described above, the payment of dividends, mergers and acquisitions and the granting of liens. The amended senior secured credit facility also requires us to maintain a minimum fixed charge coverage ratio, but only if availability on the revolving credit facility is less than $100.0 million.

The amended 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 we fail to make any required payment on debt having a principal amount in excess of $50.0 million or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity of such debt.

Our ability to borrow under the amended senior secured credit facility is based upon a specified borrowing base consisting of inventory and prescription files. At November 26, 2005, we had $530.0 million of borrowings outstanding under the revolving credit facility. At November 26, 2005, we also had letters of credit outstanding against the revolving credit facility of $110.7 million, which gave us additional borrowing capacity of $1.1 billion.

Our amended senior secured credit facility is backed by a syndicate of banks. The lead banks in this syndicate, Citigroup Global Markets, Inc. and J.P. Morgan Securities, Inc. have provided certain financial advisory, investment banking and other services for us, for which they have received customary fees and commissions.

Other Transactions

On December 15, 2005, we paid at maturity the remaining outstanding principal amount of $38.0 million of our 6.0% fixed-rate senior notes due December 2005.

On July 15, 2005, we completed the early redemption of all of our outstanding $150.0 million aggregate principal amount of 11.25% notes due July 2008 at their contractually determined early redemption price of 105.625% plus accrued interest. We funded this redemption with borrowings under our receivable securitization agreements. We recorded a loss on debt modification of $9.2 million related to this transaction.

On April 15, 2005, we paid at maturity the remaining outstanding principal amount of $170.5 million of our 7.625% senior notes due April 2005.

In September 2004, we replaced our senior secured credit facility due April 2008 with an amended senior secured credit facility due September 2009. As a result of the placement of this facility, we recorded a loss on debt modification in the thirteen and thirty-nine week periods ended November 27, 2004 of $20.2 million.

During the thirty-nine week period ended November 27, 2004, we made open market purchases of the following securities (in thousands):


Debt Redeemed	Principal Amount Redeemed		Amount Paid		Gain / (loss)
7.625% notes due 2005	$	27,500	$	28,275	$	(795	)
7.125% notes due 2007		26,000		26,548		(605	)
6.875% fixed rate senior notes due 2028		12,000		9,660		2,191
Total	$	65,500	$	64,483	$	791

The gain on the transactions listed above is recorded as part of the loss on debt modifications in the accompanying statement of operations for the thirty-nine week period ended November 27, 2004.

Other

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2006, and the succeeding four fiscal years are as follows: 2006- $38.3 million; 2007 – $573.7 million; 2008 – $0.6 million; 2009 – $150.3 million; 2010 – $0.1 million; and $2.1 billion in 2011 and thereafter. At November 26, 2005, we were in compliance with restrictions and limitations included in the provisions of various loan and credit agreements.

Substantially all of Rite Aid Corporation’s wholly owned subsidiaries guarantee the obligations under the amended 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 due under the amended senior secured credit facility. Rite Aid Corporation’s direct obligations under the amended senior secured credit facility are unsecured. The 12.5% senior secured notes due 2006, the 9.5% senior secured notes due 2011, the 8.125% senior secured notes due 2010 and the 7.5% senior secured notes due 2015 are guaranteed by substantially all of our wholly-owned subsidiaries and are secured on a second priority basis by the same collateral as the amended senior secured credit facility.

The subsidiary guarantees related to our amended 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 amended senior secured credit facility and bond issuances are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not presented.

Preferred Stock Transactions

During the thirty-nine week period ended November 26, 2005, we issued 4.8 million shares of Series I Mandatory Convertible Preferred Stock (‘‘Series I preferred stock’’) at an offering price of $25 per share. Dividends on the Series I preferred stock are $1.38 per share per year, and are due and payable on a quarterly basis in either cash or common stock or a combination of both at our election.

The Series I preferred stock will automatically convert into common stock on November 17, 2008 at a rate that is dependent upon the adjusted applicable market value of our common stock (as defined in the Series I Certificate of Designations). If the adjusted applicable market value of our common stock is $5.30 a share or higher at the conversion date, then the Series I preferred stock is convertible at a rate of 4.7134 shares of our common stock for every share of Series I preferred stock outstanding. If the adjusted applicable market value of our common stock is less than or equal to $4.42 per share at the conversion date, then the Series I preferred stock is convertible at a rate of 5.6561 shares of our common stock for every share of Series I preferred stock outstanding. If the adjusted applicable market value of our common stock is between $4.42 per share and $5.30 per share at the conversion date, then the Series I preferred stock is convertible into common stock at a rate that is between 4.7134 and 5.6561 per share. The holder may convert shares of the Series I preferred stock into common stock at any time prior to the mandatory conversion date at the rate of 4.7134 per share. The Series I preferred stock is also convertible at our option, but only if the adjusted applicable market value of our common stock exceeds $9.55. If we are subject to a cash acquisition (as defined in the Certificate of Designations) prior to the mandatory conversion date, the holder may elect to convert the shares of Series I preferred stock into shares of common stock using a conversion rate set forth in the Certificate of Designations. The holder will also receive a payment equal to the present value of all scheduled dividends through the mandatory conversion date.

Proceeds from the issuance of the Series I preferred stock, along with borrowings under the revolver, were used to redeem all of our shares of its Series F preferred stock, at 105% of the liquidation preference of $100 per share. We paid a premium to redeem the Series F preferred stock of $5.9 million.

Off Balance Sheet Obligations

We maintain receivables securitization agreements with several multi-seller asset-backed commercial paper vehicles. Under the terms of the securitization agreements, we sell substantially all of our eligible third party pharmaceutical receivables to a bankruptcy remote Special Purpose Entity (SPE) and retain servicing responsibility. The assets of the SPE are not available to satisfy the creditors of any other person, including any of our affiliates. These agreements provide for us to sell, and for the SPE to purchase these receivables, and for the SPE to borrow the funds secured by these receivables of up to $400.0 million. The amount of receivables funded at any one time is dependent upon a formula that takes into account such factors as default history, obligor concentrations and potential dilution. Adjustments to this amount can occur on a weekly basis. Proceeds from the sale of receivables to the SPE totaled $345.0 million and $150.0 million on November 26, 2005 and February 26, 2005, respectively. We retained an interest in the third party pharmaceutical receivables in the form of overcollateralization of $187.0 million and $426.4 million on November 26, 2005 and February 26, 2005, respectively, which is included in the accounts receivable, net, on the consolidated balance sheet at allocated cost, which approximates fair value.

We must pay an ongoing program fee of approximately LIBOR plus 1.125% on the amount sold to the SPE under the securitization agreements and must pay a liquidity fee of 0.375% on the daily unused amount under the securitization agreements. The program and the liquidity fees are recorded as a component of selling, general and administrative expenses. Rite Aid Corporation guarantees certain performance obligations of its affiliates under the securitization agreements, but does not guarantee the collectibility of the receivables and obligor creditworthiness.

The vehicles that purchase receivables from the SPE have a commitment to purchase that ends September 2006 with the option to annually extend the commitment to purchase. Should any of the vehicles fail to renew their commitment, we have access to a backstop credit facility, which is backed by the entities that make loans to the SPE’s. The backstop facility is committed through September 2007.

As of November 26, 2005, we had no material off balance sheet arrangements, other than the receivables securitization agreements described above. Our contractual cash obligations and

commitments, which consist primarily of debt, capital and operating leases, open purchase orders, lease guarantees and outstanding letters of credit have not changed materially from the amounts disclosed in our Fiscal 2005 10-K.

Sale Leaseback Transactions

During the thirty-nine week period ended November 26, 2005, we sold the land and buildings on a total of 28 owned stores to independent third parties. Net proceeds from these sales were approximately $77.9 million. Concurrent with these sales, we entered into agreements to lease the stores back from the purchasers over minimum lease terms of 20 years. We accounted for 27 of these leases as operating leases, which includes one lease previously precluded from sale leaseback accounting due to a form of continuing involvement. This continuing involvement no longer exists. A gain on the sale of these stores of approximately $14.6 million has been deferred and is being recorded over the minimum term of these leases. Losses of $1.0 million were recorded as losses on the sale of assets and investments for the period ended November 26, 2005. We accounted for the remaining lease as a capital lease, as the lease agreement contains a clause that allows the buyer to force us to repurchase the property under certain conditions. We have recorded a capital lease obligation of approximately $2.3 million related to this lease. Future scheduled minimum lease payments under these leases for the remainder of fiscal 2006 and the succeeding four fiscal years are as follows: 2006 – $1.6 million; 2007 - $6.5 million; 2008 - $6.5 million; 2009 - $6.5 million; 2010 - $6.5 million; and $106.8 million in 2011 and thereafter.

During the thirty-nine week period ended November 27, 2004, we sold the land and buildings on 21 owned stores to a third party. Proceeds from this sale were $53.8 million. We entered into an agreement to lease these stores back from the purchaser over a minimum lease term of 20 years. A gain on the transaction of $3.8 million has been deferred and is being recorded over the minimum lease term. A loss of $1.5 million, which relates to certain stores in the transaction portfolio, was recorded as a loss on sale of fixed assets in the thirty-nine week period ended November 27, 2004.

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

Our operating activities provided $336.8 million of cash in the thirty-nine week period ended November 26, 2005 and $523.9 million of cash in the thirty-nine week period ended November 27, 2004. Operating cash flow for the thirty-nine week period ended November 26, 2005 was provided by net income of $26.6 million, net proceeds of $195.0 million from the sale of certain of our third party receivables and an increase in accounts payables, partially offset by an increase in inventory. Operating cash flow for the thirty-nine week period ended November 27, 2004 was provided through net income of $73.9 million, proceeds of $335.0 million from the sale of certain of our third party receivables, income tax refunds of $37.6 million and an increase in accounts payable, which was partially offset by increases in inventory.

Cash used in investing activities was $132.2 million for the thirty-nine week period ended November 26, 2005 due to expenditures for property, plant and equipment and intangible assets, offset by proceeds from sale-leaseback transactions and proceeds from asset dispositions. Cash used in investing activities was $81.7 million for the thirty-nine week period ended November 27, 2004 due to expenditures for property, plant and equipment and intangible assets, offset by proceeds from sale-leaseback transactions and asset dispositions.

Cash used in financing activities was $262.3 million for the thirty-nine week period ended November 26, 2005 due to the impact of early redemption of debt, scheduled debt payments, and preferred stock cash dividend payments. Cash used in financing activities was $681.2 million for the thirty-nine week period ended November 27, 2004, due to the amendment of our credit facility and the early redemption of several bonds.

Capital Expenditures

During the thirty-nine week period ended November 26, 2005, we spent $225.8 million on capital expenditures, consisting of $133.1 million related to new store construction, store relocation and store

remodel projects, $58.2 million related to technology enhancements, improvements to distribution centers and other corporate requirements and $34.6 million related to the purchase of prescription files from independent pharmacists. We plan to make total capital expenditures of approximately $350 to $400 million during fiscal 2006. These expenditures consist of approximately $190 to $225 million related to new store construction, store relocation and store remodel projects, $115 to $125 million dedicated to technology enhancements, improvements to distribution centers and other corporate requirements, and $45 to $50 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 proceeds from sale-leaseback transactions.

During the thirty-nine week period ended November 27, 2004, we spent $141.6 million on capital expenditures, consisting of $74.7 million related to new store construction, store relocation and other store construction projects, $45.7 million related to other store improvement activities and $21.2 million related to the purchase of prescription files from independent pharmacists.

Future Liquidity

We are highly leveraged. Our high level of indebtedness: (i) limits our ability to obtain additional financing; (ii) limits our flexibility in planning for, or reacting to, changes in our business and the industry; (iii) places us at a competitive disadvantage relative to our competitors with less debt; (iv) renders us more vulnerable to general adverse economic and industry conditions; and (v) requires us to dedicate a substantial portion of our cash flow to service our debt. Based upon current levels of operations and planned improvements in our operating performance, management believes that cash flow from operations together with cash equivalent investments, sales of accounts receivable under our securitization agreements and available borrowing under the amended 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 2007. 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 amended 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

In December 2004, the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 123R, ‘‘Share-Based Payment.’’ This standard requires companies to account for share-based payments to associates using the fair value method of expense recognition. This standard is required to be adopted as of the first fiscal year beginning after December 15, 2005. We have not yet adopted SFAS No. 123R. However, as we have adopted the fair value recognition provisions of SFAS No. 123, we do not expect the adoption of SFAS No. 123R to have a material impact on our financial position or results of operations.

In March 2005, the FASB issued Interpretation No. 47 (‘‘FIN 47’’), ‘‘Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143’’. FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 states that a conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing or method of settlement are conditional upon a future event that may or may not be within control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for the interim financial information is permitted but not required. Early adoption of FIN 47 is encouraged. We do not expect the adoption to have a material impact on our financial position or results of operations.

Critical Accounting Policies and Estimates

For a discussion of the critical accounting policies that require the use of significant judgments and estimates by management, refer to "Management's Discussion and Analysis of Financial Condition — Critical Accounting Policies and Estimates" included in our Fiscal 2005 10-K.

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 Fiscal 2005 10-K.

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 2005, 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 November 26, 2005.


	2006			2007			2008			2009			2010			Thereafter			Total			Fair Value at November 26, 2005
	(dollars in thousands)
Long-term debt, Including current portion
Fixed rate	$	38,261		$	573,731		$	632		$	150,329		$	120		$	1,613,404		$	2,376,477		$	2,209,047
Average Interest Rate		6.01	%		7.46	%		8.00	%		6.13	%		8.00	%		8.11	%		7.79	%
Variable Rate	$	—		$	—		$	—		$	—		$	—		$	530,000		$	530,000		$	530,000
Average Interest Rate		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		5.62	%		5.62	%

As of November 26, 2005, 18.2% 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.

In addition to the financial instruments listed above, the program fees incurred on proceeds from the sale of receivables under our receivables securitization agreements are determined based on LIBOR.

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 and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes In Internal Control Over Financial Reporting . During the most recent quarter to which this report relates, we migrated to a new Third Party Accounts Receivable system. The migration, which resulted after more than a year of preparation, testing, and training, necessarily involved material changes to our procedures for internal control over financial reporting. Our Chief Executive Officer and Chief Financial Officer believe that throughout the migration process to date, we have maintained internal controls sufficient to ensure appropriate internal control over financial reporting.

Other than as discussed above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable.

ITEM 1A. Risk Factors

Not applicable.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

We have not sold any unregistered equity securities covered by this report, nor have we repurchased any equity securities during the period covered by this report.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

(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 February 22, 1999	Exhibit 3(ii) to Form 8-K, filed on November 2, 1999
3.3	Certificate of Amendment to the Restated Certificate of Incorporation dated June 27, 2001	Exhibit 3.4 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001
3.4	7.0% Series E Mandatory Convertible Preferred Stock Certificate of Designation dated January 25, 2005	Exhibit 3.1 to Form 8-K, filed on February 1, 2005
3.5	7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock Certificate of Designation dated January 28, 2005	Exhibit 3.2 to Form 8-K, filed on February 2, 2005
3.6	6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock Certificate of Designation dated January 28, 2005	Exhibit 3.3 to Form 8-K, filed on February 2, 2005
3.7	5.50% Series I Mandatory Convertible Preferred Stock Certificate of Designation dated August 2, 2005	Exhibit 3.1 to Form 8-K, filed on August 24, 2005
3.8	By-laws, amended and restated	Exhibit 3.1 to Form 8-K, filed on December 19, 2005
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 2000, 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 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
4.7	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
4.8	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
4.9	Indenture, dated as of May 20, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 9.25% Senior Notes due 2013	Exhibit 4.12 to Form 10-Q, filed on July 3, 2003
4.10	Indenture, dated as of January 11, 2005, among the Company, the subsidiary guarantors described therein, and BNY Midwest Trust Company, as trustee, related to the Company’s 7.5% Senior Secured Notes due January 15, 2005	Exhibit 99.2 to Form 8-K, filed on January 13, 2005
4.11	Third Amendment and Restatement dated as of September 30, 2005, to the Credit Agreement dated as of June 27, 2001, as amended and restated as of September 22, 2004, among Rite Aid Corporation, a Delaware corporation, the lenders from time to time party thereto, Citicorp North America, Inc., as administrative agent and collateral processing co-agent, JPMorgan Chase Ban, N.A., as syndication agent and collateral processing co-agent, Fleet Retail Group, Inc., as co-documentation agent and collateral agent, The CIT Group/Business Credit, Inc., as co-documentation agent, and General Electric Capital Corporation, as co-documentation agent.	Exhibit 4.11 to Form 10-Q, filed on October 3, 2005
4.12	Definitions Annex to the Senior Loan Documents and the Second Priority Debt Documents	Exhibit 4.12 to Form 10-Q, filed on October 3, 2005


Exhibit Numbers	Description	Incorporation By Reference To
4.13	Second Amendment, dated as of September 30, 2005, to the Amended and Restated Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, among Rite Aid Corporation and its subsidiaries that are a party thereto, the collateral trustees, the collateral processing co-agents and the trustees of various indentures covered by this agreement.	Exhibit 4.13 to Form 10-Q, filed on October 3, 2005
10.1	Employment Agreement by and between Rite Aid Corporation and Douglas E. Donley, dated as of August 1, 2000	Filed herewith
10.2	Employment Agreement by and between Rite Aid Corporation and Mark deBruin, dated as of February 5, 2003	Filed herewith
11	Statement regarding computation of earnings per share. (See Note 3 to the condensed consolidated financial statements)	Filed herewith
31.1	Certification of CEO pursuant to Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange Act of 1934.	Filed herewith
31.2	Certification of CFO pursuant to Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange Act of 1934.	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

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: December 22, 2005

RITE AID CORPORATION

By: /s/ ROBERT B. SARI
Robert B. Sari
Executive Vice President and
General Counsel

Date: December 22, 2005

By: /s/ KEVIN TWOMEY
Kevin Twomey
Executive Vice President and
Chief Financial Officer

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the ‘‘Agreement’’) is entered into as of the 1st day of August, 2000 (the ‘‘Effective Date’’) by and between Rite Aid Corporation, a Delaware corporation (the "Company’’), and Douglas E. Donley (the ‘‘Executive’’).

WHEREAS, Executive desires to provide the Company with his services and the Company desires to employ Executive in the capacity of Group Vice President Controller 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 Group Vice President Controller. 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 Chief Accounting Officer (‘‘CAO’’) 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 Group Vice President Controller 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 Chief Accounting Officer of 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 Two Hundred Twenty Five Thousand Dollars ($225,000) 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 25% of the Base Salary in effect for the Executive at the beginning of such fiscal year.


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.


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 Chief Accounting 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) 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 beginning on or about March 2001, 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. 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 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 Group Vice President Controller of the Company; 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 having duties and responsibilities equivalent to those of employee.

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(c), 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.

‘‘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 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.

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:	Douglas E. Donley 28 Richard Road Mechanicsburg, PA 17055

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
				/s/ Christopher Hall
				By:				Christopher Hall
				Its:				EVP Finance
				EXECUTIVE
				/s/ Douglas E. Donley

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the ‘‘Agreement’’) is entered into as of the 5 ^th (day) of February, 2003 (the ‘‘Effective Date’’) by and between Rite Aid Corporation, a Delaware corporation (the ‘‘Company’’), and Mark deBruin (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, Pharmacy Services on the terms and subject to the conditions set forth herein.

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 three (3) 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, Pharmacy Services. 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 Senior Executive Vice President, Marketing, Logistics and Pharmacy Services (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, Pharmacy Services 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 Senior Executive Vice President, Marketing, Logistics and Pharmacy Services 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 senior executive officers of the Company.

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 Two Hundred Fifty Thousand Dollars ($250,000) 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 35% of the Base Salary in effect for the Executive at the beginning of each such fiscal year.

3.3 Stock Awards .

(a) At the first meeting of the Board of Directors following his date of hire, the Compensation Committee of the Board will approve the grant to Executive of an option (the ‘‘Option’’) to purchase 175,000 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 Stock as reported on the NYSE on the effective date, (iii) have a term of ten (10) years following the effective date, (iv) vest and become exercisable as to one-fourth of the shares of the Company Stock subject to the option on each of the first four (4) anniversaries of the effective date, (v) be subject to the acceleration exercise and termination provisions set forth in Section 3.3(b) and Article 5 hereof and (vi) otherwise be evidenced by and subject to the terms of the Company's stock option agreement for officers.

(b) Upon the occurrence of a Change in Control of the Company prior to the termination of Executive's employment with the Company, the Options then held by Executive shall immediately vest and become exercisable in full and all remaining restrictions on any restricted stock granted to executive shall immediately lapse. For purposes of this Agreement ‘‘Change in Control’’ shall have the meaning set forth in the attached Appendix A.

(c) It is understood and acknowledged by Executive that the securities underlying the Options will not be subject to an effective registration statement under the federal securities laws until some time after the Effective 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 Options 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 Options are not subject to an effective registration statement, Executive will be permitted to exercise the Options 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 .

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

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

4.5 Annual Financial Planning Allowance . During each year of the Term, the Company shall provide Executive with an executive planning allowance in the amount of $3,000.

4.6 Relocation Expenses . Within one hundred eighty days (180) following the effective date, Executive shall relocate his principal residence from the Phoenix, Arizona to the Harrisburg, Pennsylvania area. The Company shall reimburse Executive for his reasonable expenses incurred in moving his household goods and cars from Phoenix, Arizona to Harrisburg in accordance with the Company's moving expense policies applicable to executive officers generally.

(b) The Company shall reimburse Executive for his reasonable living expenses for a temporary residence in the Harrisburg area until the date of relocation.

(c) The Company shall reimburse Executive for reasonable and customary closing costs incurred in the purchase of a principal residence in the Harrisburg area.

(d) The Company shall reimburse Executive for the reasonable costs of a reasonable number of round trip airfares for travel between Phoenix, Arizona and Harrisburg, Pennsylvania prior to his date of relocation. The Company shall also reimburse Executive for a reasonable number of round trip visits between Phoenix and the Harrisburg area by his immediate family members prior to the relocation date, including reasonable costs for meals, lodging, and transportation during such trips.

(e) In all other respects, Executive shall be entitled to benefits under the Company's Executive level relocation policy, as from time to time in effect.

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 Senior Executive Vice President, Marketing, Logistics and Pharmacy Services or any designee; (ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the conduct by Executive which is a material violation of Company Policy or which materially interferes with the Executive's ability to perform his duties; (iv) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary or misconduct which damages or injures the Company or the Company's reputation; (v) Executive is convicted of or pleads to a felony involving moral turpitude; or (vi) 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.

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(c), any portion of the Options that has not been exercised prior to the date of termination shall immediately terminate as of such date, and any portion of any Restricted Stock or any other 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 then 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 beginning on or about March 2001, 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 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 and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) 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(c), 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; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date.

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, status, duties, authorities, reporting relationship 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, Pharmacy Services of the Company; or

(c) any other material breach of this Agreement by the Company, including without limitation any decrease in Executive's then Base Salary or Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2;

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 and the restrictions with respect to any awards of Restricted Stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) 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(c), 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; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date.

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 equal 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 equal 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 .

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.

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 (i) 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/or 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 .

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.

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

(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;

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 .

12. Notices .

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:	Mark deBruin 30 Hunter Lane Camp Hill, Pennsylvania 17011

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: /s/ Mary Sammons

Its: President & COO

EXECUTIVE

/s/ Jerry Mark deBruin

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 recapitalization 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 disposition 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 immediately 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.

CERTIFICATIONS

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


1.	I have reviewed this quarterly report on Form 10-Q of Rite Aid Corporation (the ‘‘Registrant’’);


2.	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;


3.	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;


4.	The registrant's other certifying officer(s) 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:


	a.	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;


	b.	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;


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


	d.	Disclosed in this quarterly 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


5.	The registrant's other certifying officer(s) 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 (or persons performing the equivalent function):


	a.	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


	b.	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: December 22, 2005

By: /s/ MARY F. SAMMONS
Mary F. Sammons
President and Chief Executive Officer

CERTIFICATIONS

I, Kevin Twomey, Executive Vice President and Chief Financial Officer, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Rite Aid Corporation (the ‘‘Registrant);


2.	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;


3.	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;


4.	The registrant's other certifying officer(s) 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:


	a.	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;


	b.	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;


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


	d.	Disclosed in this quarterly 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


5.	The registrant's other certifying officer(s) 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 (or persons performing the equivalent function):


	a.	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


	b.	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: December 22, 2005

By: /s/ KEVIN TWOMEY
Kevin Twomey
Executive Vice President and
Chief Financial Officer

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 November 26, 2005 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 Kevin Twomey 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: December 22, 2005

/s/ Kevin Twomey
Name: Kevin Twomey
Title: Chief Financial Officer
Date: December 22, 2005