The income tax benefit of the operating loss generated in the thirteen week period ended May 31, 2003 has been fully offset by a valuation allowance as a result of our determination that, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.

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

Liquidity and Capital Resources

General

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

Credit Facility

Our senior secured credit facility consists of a $1.15 billion term loan and a $700.0 million revolving credit facility, and will mature on April 30, 2008. Our ability to borrow under the senior secured credit facility is based on a specified borrowing base consisting of eligible accounts receivable, inventory and prescription files. On May 29, 2004, we had $573.2 million in additional available borrowing capacity under the revolving credit facility net of outstanding letters of credit of $126.8 million.

Substantially all of Rite Aid Corporation's wholly owned subsidiaries guarantee the obligations under the senior secured credit facility. The subsidiary guarantees are secured by a first priority lien on, among other things, the inventory, accounts receivable and prescription files of the subsidiary guarantors. Rite Aid Corporation is a holding company with no direct operations and is dependent upon dividends, distributions and other payments from its subsidiaries to service payments under the senior secured credit facility. Rite Aid Corporation's direct obligations under the senior secured credit facility are unsecured.

The senior secured credit facility allows for the issuance of up to $150.0 million in additional term loans or additional revolver availability. We may request the additional loans at any time prior to the maturity of the senior secured credit facility, provided we are not in default of any terms of the facility, nor are in violation of any financial covenants. The senior secured credit facility allows us to have outstanding, at any time, up to $1.0 billion in secured debt, in addition to the senior secured credit facility. At May 29, 2004, the remaining additional permitted secured debt under the senior secured credit facility is $198.0 million. We also have the ability to incur an unlimited amount of unsecured debt, if the terms of such unsecured indebtedness comply with certain terms set forth in the credit agreement and subject to our compliance with certain financial covenants. If we issue unsecured debt that does not meet the credit agreement restrictions, it reduces the amount of available permitted secured debt. The senior secured credit facility also allows for the repurchase of any debt with a maturity prior to April 30, 2008, and for $200.0 million of debt with a maturity after April 30, 2008, plus an additional amount based upon outstanding borrowings under the revolving credit facility and available cash at the time of the repurchase.

The senior secured credit facility contains customary covenants, which place restrictions on the incurrence of debt, the payment of dividends, mergers, liens and sale and leaseback transactions. The senior secured credit facility also requires us to meet various financial ratios and limits capital expenditures. For the twelve months ending February 26, 2005, the covenants require us to maintain a maximum leverage ratio of 6.05:1. Subsequent to February 26, 2005, the ratio gradually decreases to 3.80:1 for the twelve months ending March 1, 2008. We must also maintain a minimum interest coverage ratio of 2.05:1 for the twelve months ending February 26, 2005. Subsequent to February 26, 2005, the ratio gradually increases to 3.25:1 for the twelve months ending March 1, 2008. In addition, we must maintain a minimum fixed charge ratio of 1.10:1 for the twelve months ending February 26, 2005. Subsequent to the twelve months ending February 26, 2005, the ratio gradually increases to 1.25:1 for the twelve months ending March 1, 2008. Capital expenditures are limited to $386.1 million for the fiscal year ending February 26, 2005, with the allowable amount increasing in subsequent years.

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We were in compliance with the covenants of the senior secured credit facility and our other debt instruments as of May 29, 2004. With continuing improvements in operating performance, we anticipate that we will remain in compliance with our debt covenants. However, variations in our operating performance and unanticipated developments may adversely affect our ability to remain in compliance with the applicable debt maintenance covenants.

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

Other Transactions

In June 2004, we repurchased $26.0 million of our 7.125% notes due January 2007 and $12.0 million of our 6.875% notes due December 2028. We will record a net gain on debt modifications and retirements of $1.6 million on these transactions.

During the thirteen week period ended May 31, 2003, we repurchased the following securities (in thousands):

	Debt Repurchased				Principal Amount Repurchased				Amount Paid				Gain
	6.0% fixed rate senior notes due 2005				$	37,848			$	36,853			$	865
	7.125% notes due 2007					124,926				120,216				4,314
	6.875% senior debentures due 2013					15,227				13,144				1,981
	7.7% notes due 2027					5,000				4,219				715
	6.875% fixed rate senior notes due 2028					10,000				7,975				1,895
	Total				$	193,001			$	182,407			$	9,770

The gain on the transactions listed above is recorded as part of the loss on debt modification in the accompanying statement of operations for the thirteen week period ended May 31, 2003.

The aggregate annual principal payments of long-term debt for the remainder of fiscal 2005 and the succeeding four fiscal years are as follows: 2005-$9.0 million, 2006-$250.8 million, 2007-$606.6 million, 2008-$12.4 million, 2009-$1,404.1 million, and $1,424.1 million in 2010 and thereafter.

Other

As of May 29, 2004, we had no material off balance sheet arrangements. Our contractual 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 2004 10-K.

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

Our operating activities provided $216.6 million of cash in the thirteen week period ended May 29, 2004 and provided $49.8 million of cash in the thirteen week period ended May 31, 2003. Operating cash flow for the thirteen week period ended May 29, 2004 was provided through improved operating results, income tax refunds of $36.0 million, increases in accounts payables and decreases in accounts receivable, which offset $52.2 million in interest payments and increases in inventory. Operating cash flow for the thirteen week period ended May 31, 2003 was provided through improved operating results and increases in accounts payable, which offset $61.2 million of interest payments and increases in accounts receivable and inventory.

Cash used in investing activities was $38.3 million for the thirteen week period ended May 29, 2004 due to expenditures for property, plant and equipment and intangible assets, offset by proceeds from asset dispositions. Cash used in investing activities was $125.1 million for the thirteen week period ended May

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31, 2003, due primarily to the purchase of land and buildings at our Perryman, MD and Lancaster, CA distribution centers, which had previously been held under a synthetic lease arrangement. Also impacting cash used in investing activities were expenditures for property, plant and equipment as well as intangible assets, offset by proceeds from asset dispositions.

Cash used in financing activities was $12.8 million for the thirteen week period ended May 29, 2004, due to the impact of scheduled debt payments and the change in zero balance cash accounts. Cash provided by financing activities was $52.8 million for the thirteen week period ended May 31, 2003. Cash provided by financing activities in the thirteen week period ended May 31, 2003 was positively impacted by proceeds from bond issuances, offset by the change in our credit facility and the repurchase of several bonds.

Capital Expenditures

During the thirteen week period ended May 29, 2004, we incurred capital expenditures of $41.8 million consisting of $19.4 million related to new store construction, store relocation and other store construction projects. An additional $22.4 million was related to other store improvement activities and the purchase of prescription files from independent pharmacists. We plan to make total capital expenditures of approximately $275 to $325 million during fiscal 2005. These expenditures consist of approximately $175 to $205 million related to new store construction, store relocation and store remodel projects, $70 to $80 million dedicated to technology enhancements, improvements to distribution centers and other corporate requirements, and $30 to $40 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. During the thirteen week period ended May 31, 2003, we spent $133.7 million on capital expenditures, consisting of $11.0 million related to new store construction, store relocation and other store construction projects. An additional $15.8 million was related to other store improvement activities and the purchase of prescription files from independent pharmacists. Additionally, during the thirteen week period ended May 31, 2003, we incurred capital expenditures of $106.9 million related to the purchase of land and buildings at our Perryman, MD and Lancaster, CA distribution centers, which had previously been held under a synthetic lease arrangement.

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 and available borrowing under the 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 2005. 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 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 January of 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities", subject to certain effective date deferrals. FIN No. 46 requires the consolidation of entities that cannot finance their activities without the support of other parties and that lack certain characteristics of a controlling interest, such as the ability to make decisions about the entity's activities via voting rights or

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similar rights. The entity that consolidates the variable interest entity is the primary beneficiary of the entity's activities. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and must be applied in the first period ending after December 15, 2003 for entities in which an enterprise holds a variable interest entity that it acquired before February 1, 2003. The adoption of FIN No. 46 did not have a material impact on our financial position or results of operations. In December of 2003, the FASB revised FIN 46 ("FIN 46R"), which delayed the required implementation date for variable interest entities until the end of the first reporting period that ends after March 15, 2004. FIN 46R applied to our financial statements for the period ended May 29, 2004. The adoption of FIN 46R did not have a material impact on our financial position or results of operations.

Factors Affecting Our Future Prospects

For a discussion of risks related to our financial condition, operations and industry, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview" and "Factors Affecting our Future Prospects" included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2004, which we filed with the SEC on April 26, 2004.

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 2004, 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 May 29, 2004.

				2005				2006				2007				2008				2009				Thereafter				Total				Fair Value at May 29, 2004
				(dollars in thousands)
Long-term debt, Including current portion
Fixed rate				$	377			$	236,419			$	595,149			$	871			$	300,092			$	1,424,144			$	2,557,052			$	2,555,705
Average Interest Rate					8.00	%			7.36	%			7.50	%			8.00	%			8.69	%			8.20	%			8.01	%
Variable Rate					8,625			$	14,375			$	11,500			$	11,500			$	1,104,000			$	—			$	1,150,000			$	1,150,000
Average Interest Rate					4.10	%			4.10	%			4.10	%			4.10	%			4.10	%			—	%			4.10	%

As of May 29, 2004, 29.6% of our total debt is subject to fluctuations in variable interest rates.

Our ability to satisfy interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot assure you that any such borrowing or equity financing could be successfully completed.

As of May 29, 2004, the ratings on our new senior secured credit facility were BB by Standard & Poor's and Ba3 by Moody's. The interest rate on the variable rate borrowings on this facility are LIBOR plus 3.00% for the term loan and 3.50% for the revolving credit facility.

ITEM 4.    Controls and Procedures

(a) Disclosure Controls and Procedures.    Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls

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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. Our disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately, and on a timely basis. Based on each evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, the information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

(b) Changes In Internal Control Over Financial Reporting.    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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.    Legal Proceedings

The investigations conducted by multiple state attorneys general and the United States Department of Justice related to our reimbursement practices for partially filled prescriptions and fully filled prescriptions that are not picked up by ordering customers have been concluded. In addition, the lawsuit filed in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal healthcare plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers has been settled. Under the settlement agreement we paid $7.2 million in June 2004, which was previously accrued. We believe that these investigations are similar to investigations that were undertaken with respect to the practices of others in the retail drug industry. The complaint will be dismissed with prejudice.

ITEM 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

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

No matters were submitted to a vote of the security holders during the thirteen week period ended May 29, 2004.

ITEM 5.    Other Information

Not applicable.

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ITEM 6.    Exhibits and Reports on Form 8-K

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

Exhibit Numbers

Description

Incorporation By Reference To

3.1

Restated Certificate of Incorporation dated December 12, 1996

Exhibit 3(i) to Form 8-K, filed on November 2, 1999

3.2

Certificate of Amendment to the Restated Certificate of Incorporation dated 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

8% Series D Cumulative Pay-in-Kind Preferred Stock Certificate of Designation dated October 3, 2001

Exhibit 3.5 to Form 10-Q, filed on October 12, 2001

3.5

By-laws, as amended on November 8, 2000

Exhibit 3.1 to Form 8-K, filed on November 13, 2000

3.6

Amendment to By-laws, adopted January 30, 2002

Exhibit T3B.2 to Form T-3, filed on March 4, 2002

4.1

Indenture, dated August 1, 1993 by and between Rite Aid Corporation, as issuer, and Morgan Guaranty Trust Company of New York, as trustee, related to the Company's 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013

Exhibit 4A to Registration Statement on Form S-3, File No. 333-63794, filed on June 3, 1993

4.2

Supplemental Indenture dated as of February 3, 2000, between Rite Aid Corporation, as issuer, and U.S. Bank Trust National Association as successor to Morgan Guaranty Trust Company of New York,, to the Indenture dated as of August 1, 1993, relating to the Company's 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013

Exhibit 4.1 to Form 8-K filed on February 7, 2000

4.3

Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company's 5.50% Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028

Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999

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

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Exhibit Numbers

Description

Incorporation By Reference To

4.5

Indenture, dated as of June 27, 2001, between Rite Aid Corporation, as issuer and State Street Bank and Trust Company, as trustee, related to the Company's 12.50% Senior Secured Notes due 2006

Exhibit 4.7 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001

4.6

Indenture, dated as of June 27, 2001 between Rite Aid Corporation, as issuer and BNY Midwest Trust Company, as trustee, related to the Company's 11 ¼% Senior Notes due 2008

Exhibit 4.8 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001

4.7

Indenture, dated as of November 19, 2001, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 4.75% Convertible Notes due December 1, 2006

Exhibit 4.3 to Form 10-Q, filed on January 15, 2002

4.8

Indenture, dated as of February 12, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, Related to the Company's 9½% Senior Secured Notes due 2011

Exhibit 4.1 to Form 8-K, filed on March 5, 2003

4.9

Indenture, dated as of April 22, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 8.125% Senior Secured Notes due 2010

Exhibit 4.11 to Form 10-K, filed on May 2, 2003

4.10

Indenture, dated as of May 20, 2003, between Rite Aid Corporation, as issuer, and BNY Midwest Trust Company, as trustee, related to the Company's 9.25% Senior Notes due 2013

Exhibit 4.12 to Form 10-Q, filed on July 3, 2003

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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

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Certification of CEO and CFO pursuant to 18 United States Code, Section 1350, as adopted persuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

Rite Aid filed the following current reports on Form 8-K during the thirteen week period ended May 29, 2004:

1.    Rite Aid Corporation did not file any Current Reports on Form 8-K during the thirteen week period ended May 29, 2004.

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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: June 29, 2004				RITE AID CORPORATION By:  /s/ ROBERT B. SARI Robert B. Sari Senior Vice President and General Counsel
Date: June 29, 2004				By:  /s/ JOHN T. STANDLEY John T. Standley Senior Executive Vice President, Chief Administrative Officer, and Chief Financial Officer

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