PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters2018, currently consists of David R. Jessick (Chair), Kevin E. Lofton and Issuer PurchasesMichael N. Regan. The Board has determined that each of Equity Securities.

Our common stockthese individuals is listed on the New York and Pacific Stock Exchangesan independent director under the symbol "RAD." On April 19, 2004, we had approximately 15,421 record shareholders. Quarterly high and low stock prices, based on the New York Stock Exchange composite transactions,(“NYSE”) listing standards and satisfies the additional independence requirements of Rule 10A-3 under the Exchange Act and the additional requirements of the NYSE listing standards for audit committee members. See the section entitled “Director Independence” under Item 13 below. The Board has determined that each of these individuals is also “financially literate” under the applicable NYSE listing standards. The Board has determined that David R. Jessick qualifies as an “audit committee financial expert” as that term is defined under applicable SEC rules.

The independent auditors and internal auditors meet with the Audit Committee with and without the presence of management representatives. For additional information, see the Audit Committee’s charter, which is posted on our website at www.riteaid.com under the headings “Corporate Info—Governance—Corporate Governance Committees—Committee Charters.”

Compensation Committee.  The Compensation Committee, which held six meetings during fiscal year 2018, currently consists of Marcy Syms (Chair), Bruce G. Bodaken and Michael N. Regan. The Board has determined that each of these individuals is an independent director under the NYSE listing standards and satisfies the additional independence requirements of the NYSE listing standards for compensation committee members. See the section entitled “Director Independence” under Item 13 below.

Nominating and Governance Committee.  The Nominating and Governance Committee, which held one meeting during fiscal year 2018, currently consists of Joseph B. Anderson, Jr. (Chair), Myrtle S. Potter and Frank A. Savage. The Board has determined that each of these individuals is an independent director under the NYSE listing standards. See the section entitled “Director Independence” under Item 13 below.

Executive Committee.  The members of the Executive Committee currently are shown below.John T. Standley (Chair), David R. Jessick and Michael N. Regan. The Executive Committee did not meet during fiscal year 2018. The Executive Committee, except as limited by Delaware law, is empowered to exercise all of the powers of the Board of Directors.

Directors’ Attendance at Board, Committee and Annual Meetings

The Board of Directors held 25 meetings during fiscal year 2018. Each director attended at least 75% of the aggregate of the meetings of the Board of Directors and meetings held by all committees on which such director served, during the period for which such director served.

It is our policy that directors are invited and encouraged to attend the annual meeting of stockholders. Eight of our nine directors serving on the Board or nominated to serve on the Board at the time of the meeting attended the 2017 Annual Meeting of Stockholders.

Executive Sessions of Non-Management Directors

In order to promote discussion among the non-management directors, regularly scheduled executive sessions (i.e., meetings of non-management directors without management present) are held to review such topics as the non-management directors determine. Mr. Regan, our Lead Independent

Director, presides at our executive sessions.  The non-management directors met in executive session 10 times during fiscal year 2018.

Communications with the Board of Directors

The Board has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested parties may contact any member (or all members) of the Board, any Board committee or any chair of any such committee by mail or electronically. To communicate with the Board of Directors, the non-management directors, a committee of directors or any individual directors, including our Lead Independent Director, correspondence should be addressed to the Board of Directors or any such individual directors or committee of directors by either name or title. All such correspondence should be sent to Rite Aid Corporation, c/o Secretary, P.O. Box 3165, Harrisburg, Pennsylvania 17105. To communicate with any of the directors electronically, stockholders should go to our website at www.riteaid.com. Under the headings “Corporate Info—Governance—Board of Directors—Contact the Board of Directors” you will find an on-line form, as well as an email address, that may be used for writing an electronic message to the Board, the non-management directors, any individual directors, or any committee of directors. Please follow the instructions on the website in order to send your message.

All communications received as set forth above will be opened by the Secretary for the purpose of determining whether the contents represent a message to the directors, and depending on the facts and circumstances outlined in the communication, will be distributed to the Board, the non-management directors, an individual director or committee of directors, as appropriate. The Secretary will make sufficient copies of the contents to send to each director who is a member of the Board or of the committee to which the envelope or e-mail is addressed.

Executive Officers

Officers are appointed annually by the Board of Directors and serve at the discretion of the Board of Directors. Set forth below is information, as of April 21, 2018, regarding the current executive officers of Rite Aid.

Fiscal Year				Quarter				High				Low
2005 (through April 19, 2004)				First				$	5.75			$	5.11
2004				First					3.90				2.17
				Second					5.05				3.67
				Third					6.30				4.73
				Fourth					6.40				5.25
2003				First					4.22				3.01
				Second					3.24				1.75
				Third					2.65				1.79
				Fourth					3.05				2.02

Name		Age		Position with Rite Aid
John T. Standley(1)		55		Chairman and Chief Executive Officer
Kermit Crawford		58		President and Chief Operating Officer
Darren W. Karst		58		Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer
Bryan Everett		44		Chief Operating Officer of Rite Aid Stores
Jocelyn Konrad		48		Executive Vice President, Pharmacy
David Abelman		58		Executive Vice President, Marketing
Derek Griffith		55		Executive Vice President, Store Operations
Matthew Schroeder		48		Senior Vice President, Chief Accounting Officer and Treasurer

We

(1)                     Mr. Standley’s biographical information is provided above in the section identifying the Board of Directors.

Kermit Crawford.  Kermit Crawford joined Rite Aid Corporation in October 2017 as President and Chief Operating Officer.  Most recently, Mr. Crawford has served as a retail and healthcare adviser

and consultant for New York City-based Sycamore Partners, a private equity firm specializing in retail and consumer investments, since 2015.  Prior to joining Sycamore Partners, Mr. Crawford, a licensed pharmacist, spent more than 30 years with Walgreens, where he held a wide range of store operations and senior management positions, including responsibility for the company’s pharmacy services, which included its pharmacy benefit management services.  When he retired from Walgreens in 2014, Mr. Crawford was executive vice president and president of Walgreens’ pharmacy, health and wellness division, where he was responsible for all aspects of strategic, operational, and financial management for the division.  Mr. Crawford also serves on the board of directors for The Allstate Corporation and LifePoint Health, Inc.  He is also on the Board of Councilors of the University of Southern California School of Pharmacy.

Darren W. Karst.  Mr. Karst was appointed Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer effective October 25, 2015.  Prior to this appointment, Mr. Karst served as Executive Vice President and Chief Financial Officer since August 2014. Prior to joining Rite Aid, from 2002 until 2014, Mr. Karst served as Executive Vice President, Chief Financial Officer and Assistant Secretary with Roundy’s, Inc., a Wisconsin-based supermarket chain. From March 1995 until March 1996, Mr. Karst served as Senior Vice President, Chief Financial Officer, Secretary and Director of Dominick’s Supermarkets, Inc. and from March 1996 until the acquisition of Dominick’s by Safeway in 1998, Mr. Karst served as Executive Vice President, Finance and Administration, Chief Financial Officer, Secretary and Director. Mr. Karst was a partner at the Yucaipa Companies, a private equity investment firm, from 1991 to 2002.

Bryan Everett.  Mr. Everett was appointed Chief Operating Officer of Rite Aid Stores as of September 1, 2017.  Prior to his promotion to this position, Everett served as the Executive Vice President of Store Operations since joining the Company on August 3, 2015.  Previously, Mr. Everett served as the Senior Vice President of Store Operations at Target Corporation overseeing the support functions and strategy for all stores.  From February 2011 to March 2014, Mr. Everett served as the Senior Vice President of Target stores in the north region, with responsibility for total operations of 457 stores.  Mr. Everett held multiple senior leadership positions in stores, operations and merchandising at Target since 2002.  Prior to joining Target, Mr. Everett held leadership positions in the grocery industry with Aldi Foods and Fleming Wholesale.

Jocelyn Konrad.  Jocelyn Konrad was appointed Executive Vice President, Pharmacy effective August 3, 2015.  Prior positions at Rite Aid include Regional Pharmacy Vice President, President of Healthcare Initiatives and most recently, Group Vice President of Pharmacy Initiatives and Clinical Services.  Prior to joining Rite Aid, Ms. Konrad served as a District Manager for Eckerd Pharmacy from 1997 through 2007.  From 1992 to 1997, she served as a pharmacist for Thrift Drug Pharmacy.  Ms. Konrad is a registered pharmacist and holds a Bachelor of Science degree from Philadelphia College of Pharmacy and Science.

David Abelman.  Mr. Abelman was appointed Executive Vice President of Marketing effective August 3, 2015.  Prior to this position, he served as our Senior Vice President of Brand Development & Innovation since April 2014.  Prior to joining Rite Aid, Mr. Abelman was CEO and co-founder of Self Health Nation.  Mr. Abelman also served as Executive Vice President and Chief Marketing & Merchandising Officer at AC Moore from May 2009 through December 2011 and Senior Vice President of Marketing for Michael’s from August 2005 through December 2007.  He has also held senior

marketing positions at Office Depot, Daymon Associates and the Great Atlantic & Pacific Tea Company.

Derek Griffith.  Mr. Griffith is the Company’s Executive Vice President of Store Operations.  In this position, Griffith is responsible for all aspects of the company’s chainwide store operations.  Mr. Griffith is a skilled leader with more than 30 years of experience in store operations.  He joined Rite Aid in 2008 as a regional vice president of store operations.  In 2010, he was promoted to senior vice president of store operations, with responsibility for more than 1,100 Rite Aid stores in the Northeast and Midwest.  Prior to joining Rite Aid, Mr. Griffith held various store operations roles with increasing responsibility at Target and Home Depot.  Mr. Griffith holds a bachelor’s degree in petroleum engineering from West Virginia University.

Matthew Schroeder.  Mr. Schroeder was appointed Senior Vice President, Chief Accounting Officer and Treasurer of Rite Aid Corporation effective November 2, 2017.  Mr. Schroeder joined Rite Aid in 2000 as vice president of financial accounting and was promoted to group vice president of strategy, investor relations and treasurer in 2010.  Prior to joining the Company, Mr. Schroeder worked for Arthur Andersen, LLP, where he held several positions of increasing responsibility, including audit senior and audit manager.  Mr. Schroeder earned his bachelor’s degree in accounting from Indiana University of Pennsylvania.  He also currently serves as treasurer of The Rite Aid Foundation.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Rite Aid’s executive officers, directors and persons who own more than 10% of Rite Aid common stock to file reports of ownership and changes in ownership with the SEC and the NYSE. Such persons are required by SEC regulations to furnish Rite Aid with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to Rite Aid, we have not declareddetermined that during fiscal year 2018, no persons subject to Section 16(a) reporting submitted late filings, except that one Form 4 was filed late for each of Mr. Abelman, Mr. Anderson, Mr. Bodaken, Mr. Donley, Mr. Everett, Mr. Jessick, Mr. Karst, Ms. Konrad, Mr. Lofton, Mr. Martindale, Mr. Montini, Ms. Potter, Mr. Regan, Mr. Savage, Mr. Standley and Ms. Syms, due to an administrative error by the Company in connection with the grant of the July 17, 2017 annual equity awards under the 2014 Plan.

Item 11.Executive Compensation

Directors’ Compensation

Each non-management director receives an annual payment of $100,000 in cash, payable quarterly in arrears. In addition, (i) the Lead Independent Director receives an additional annual payment of $25,000; (ii) the Chair of the Audit Committee receives an additional annual payment of $20,000; (iii) the Chairs of the Compensation Committee and the Nominating and Governance Committee each receive an additional annual payment of $10,000; and (iv) each member of the Audit Committee (other than the Chair) receives an additional annual payment of $10,000. Non-management directors also received an annual award of restricted stock or paid any cash dividends onrestricted stock units valued at $120,000 (with the number of shares subject to the grant calculated by dividing 120,000 by the closing price of our common stock sinceon the day before the date of grant, rounded to the nearest whole share). The annual grant vests 80% on the first anniversary of the grant and 10% on each of the second and third anniversaries of the

grant. Directors who are officers and/or Rite Aid associates receive no separate compensation for service as directors or committee members. Directors are reimbursed for travel and lodging expenses associated with attending Board of Directors and Board committee meetings.

Non-management directors are subject to our Stock Ownership Guidelines discussed on pages 31 to 32.

DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2018

The following Director Compensation Table sets forth fees, awards and other compensation paid to or earned by our non-management directors who served during the fiscal year ended March 3, 2018:

(1)                    Represents the grant date fair value of stock awards granted in fiscal year 2018 in accordance with Financial Accounting Standards Board (“FASB”) Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 17 to our financial statements contained in the Original Report. We recognize expense ratably over the three-year vesting period.

(2)                    The number of unvested restricted stock awards outstanding as of March 3, 2018 for each director is detailed in the table below.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

We encourage you to read this Compensation Discussion and Analysis for a detailed discussion and analysis of our fiscal year 2018 executive compensation program for the individuals named below. We refer to these individuals throughout this Compensation Discussion and Analysis and the accompanying tables as our “Named Executive Officers.”

*Mr. Montini retired effective as of December 15, 2017.

Executive Summary

Our Company.

Rite Aid Corporation is the third quarter of fiscal 2000 and we do not anticipate paying cash dividendslargest retail drugstore chain in the foreseeable future. Our senior secured credit facility does not allow usUnited States based on revenues and number of stores, operating 2,550 stores as of March 3, 2018 in 19 states. We also operate our Pharmacy Benefits Management (PBM) company, EnvisionRxOptions, as we continue our transition into a retail healthcare organization.

Merger Agreement.  On February 18, 2018, Rite Aid entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Albertsons Companies, Inc. (“Albertsons”), Ranch Acquisition II LLC, a Delaware limited liability company and a wholly-owned direct subsidiary of Albertsons (“Merger Sub II”) and Ranch Acquisition Corp., a Delaware corporation and a wholly-owned direct subsidiary of Merger Sub II (“Merger Sub” and, together with Merger Sub II, the “Merger Subs”).

Pursuant to pay cash dividends. Somethe Merger Agreement, (i) Merger Sub will merge with and into Rite Aid (the “Merger”), with Rite Aid surviving the Merger as a wholly-owned direct subsidiary of Merger Sub II (the “Surviving Corporation”), and (ii) immediately following the Merger, the Surviving Corporation will merge with and into Merger Sub II (the “Subsequent Merger” and, together with the Merger, the “Merger”) with Merger Sub II surviving the Subsequent Merger as a wholly-owned direct subsidiary of Albertsons (the “Surviving Company”). At the effective time of the indenturesMerger (the “Effective Time”), each share of Rite Aid’s common stock, par value $1.00 per share, issued and outstanding immediately prior to the Effective Time will be converted into the right to receive and become exchangeable for 0.1000 of a fully paid and nonassessable share of Albertsons common stock, par value $0.01 per share (“Albertsons Common Stock”), without interest, plus, at the election of the holder of the Rite Aid stock, either (i) an amount in cash equal to $0.1832 per share, without interest, or (ii) an additional 0.0079 of a fully paid and nonassessable share of Albertsons Common Stock. On March 29, 2018, Rite Aid announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with the Merger. The Merger remains subject to other customary closing conditions, including the approval of Rite Aid stockholders. Subject to these approvals, the Merger is expected to close in the early part of the second half of calendar 2018.

Termination of Merger Agreement with Walgreens Boots Alliance, Inc. (“WBA”).  After pursuit of a merger with WBA and Victoria Merger Sub, Inc. for nearly 20 months, on June 28, 2017 Rite Aid, WBA and Victoria Merger Sub, Inc. entered into a Termination Agreement (the “WBA Merger Termination Agreement”) under which the parties agreed to terminate the WBA Merger Agreement.  The WBA Merger Termination Agreement provides that governWBA would pay to Rite Aid a termination fee in the amount of $325.0 million, which we received June 30, 2017.

Asset Sale.  On June 28, 2017 Rite Aid entered into an asset purchase agreement with WBA, which was amended and restated on September 18, 2017, agreeing to sell 1,932 stores, three distribution centers, related inventory, and other specific assets and liabilities related thereto for a purchase price of $4.375 billion. On October 17, 2017, we began the process of selling the assets to be sold to WBA in accordance with the terms and provisions of this agreement. During the fifty-two weeks ended March 3, 2018, we sold 1,651 stores and related assets to WBA in exchange for proceeds of $3,553.5 million, which were used to repay outstanding debt, and recognized a pre-tax gain of $2.1 billion. We estimate that the total pre-tax gain on the sale will be approximately $2.5 billion. As of March 27, 2018, we have completed the store transfer process, and all 1,932 stores and related assets have been transferred to WBA. The transfer of the three distribution centers and related inventory is expected to begin after September 1, 2018.

In fiscal year 2018, we continued reporting our other outstanding indebtedness also restrictbusiness in two distinct segments. Our Retail Pharmacy Segment consists of Rite Aid stores, RediClinic and Health Dialog. Our Pharmacy Services Segment consists of EnvisionRx, our PBM that has been rebranded as EnvisionRxOptions.  The above changes and challenges for our business resulted in the need to address retention concerns in the immediate term.

We feel that we have assembled a very strong team of executives, which has in turn resulted in our ability to pay dividends.attract and retain highly talented individuals at all levels of the organization who are committed to our core values of excellence, integrity and respect for people and have the ability to execute our strategic and operational priorities. This combination of strong executive leadership and a

highly talented and motivated supporting team has enabled us to focus in on a robust suite of assets that are both strong and unique in the retail healthcare space.

Our Fiscal Year 2018 Performance Measures for Incentive Programs.

Despite our executive leadership team’s continued focus on driving our business, the extended duration of the WBA merger and asset sale process, and the resulting uncertainty, had a negative impact on our fiscal year 2018 results. We were also excluded from some PBM networks and faced continued pharmacy reimbursement rate challenges that we were unable to offset with reductions in drug purchasing costs. Below is additional detail related to key financial indicators used as performance measures in our incentive programs for fiscal year 2018.  All amounts, unless stated otherwise, are for continuing operations:

·                              Adjusted EBITDA was $560 million or 2.6% of revenues for fiscal year 2018 compared to $740 million or 3.2% of revenues for the prior year (which was one week longer than fiscal year 2018). See "Management's Discussionthe discussion under the caption “Cash Incentive Bonuses” below for more detail on how Adjusted EBITDA was used. The decline in Adjusted EBITDA is due to a decrease of $164 million in the Retail Pharmacy Segment and Analysis$17 million in the Pharmacy Services Segment.  The decrease in the Retail Pharmacy Segment EBITDA was primarily driven by a decline in pharmacy sales and gross profit.  These declines were due to continued reductions in reimbursement rates which the Company was unable to fully offset with generic purchasing efficiencies, as well as lower script counts.  The decrease in the Pharmacy Services Segment EBITDA was primarily driven by a decline in Revenues. See Appendix A for a reconciliation of Financial Conditionour Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP.

·                              We had adjusted net loss of $20 million, or $.02 per diluted share compared to the prior year’s adjusted net income of $85 or $0.08 per diluted share.  This decline was primarily due to a decline in Adjusted EBITDA, as described above. See Appendix A for a reconciliation of our adjusted net income and Resultsadjusted net income per diluted share, which are non-GAAP measures, to net income under GAAP.

·                              Our return on net assets for fiscal year 2018 was -0.6%.  This ratio is a measure of Operations."the effective deployment of our assets within our business.

Our Executive Compensation Philosophy.

We believe strongly that pay should align with performance and this focus is reflected in our executive compensation programs. We seek to provide our Named Executive Officers with opportunities to earn total direct compensation (base salary, annual incentives, and long-term incentives) that are generally aligned with compensation levels provided to peer company executives and executives within similarly-sized retailers more broadly.

Because of our desire to reinforce a performance-based culture, the Company emphasizes a pay mix that is comprised primarily of variable pay. As a result, base salary makes up the smallest portion of total direct compensation for the Named Executive Officers, with variable pay in the form of annual and long-term incentives comprising the remaining portion. The mix varies by position, taking into account

each position’s ability to influence Company results, as well as competitive practice. See page 21 for a graphical representation of pay mix by executive.

Consideration of Stockholder Votes on Executive Compensation.

In July 2017, our stockholders voted to hold an advisory vote on executive compensation every year. Consistent with that vote, the Board resolved to hold an advisory “say-on-pay” vote every year in connection with its annual meeting of stockholders.

At our 2017 Annual Meeting approximately 87% of shares voting on the proposal voted in favor of the compensation of our Named Executive Officers on a non-binding, advisory basis. As a result of the strong support of our stockholders in respect of the say-on-pay vote conducted at our 2017 Annual Meeting, the Compensation Committee determined that no material structural design changes should be made to our executive compensation program for our Named Executive Officers in fiscal year 2018.

As in the past, the Compensation Committee will continue to review the results of future advisory say-on-pay votes and will consider stockholder concerns and take them into account in future determinations concerning the compensation of our Named Executive Officers.

Our Fiscal Year 2018 Pay Decisions.

While focused on our compensation philosophy of pay based on performance in fiscal year 2018, with the impact on our business of the prolonged WBA merger attempt and asset sale and the resulting uncertainty, along with being excluded from some PBM networks and facing continued pharmacy reimbursement rate challenges, we believed it was also important to incorporate a retention program for our leadership team.  In addition to providing for pay based on performance metrics intended to be aligned with stockholder returns we provided time based retention awards to our key leaders, including the Named Executive Officers.

We used Adjusted EBITDA as the primary financial metric in our annual incentive plan and long-term performance awards in fiscal year 2018. We believe this was appropriate because EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group and represented the best indicator of Rite Aid’s operating performance based on our financial situation and corporate structure. With respect to long-term performance awards, a return on net asset ratio continued to be a component of the performance assessment. The Compensation Committee believes that return on net assets is a key indicator of our corporate performance, as it measures how efficiently and effectively we deploy our assets (return on net assets) and focuses management on the need to improve the Company’s financial condition over time. Additionally, the Compensation Committee has maintained a plan provision subjecting the long-term performance award to positive or negative modification based on our relative stockholder return versus the Russell 3000 Index over the three-year performance period.

Our Consolidated Adjusted EBITDA (which consists of Adjusted EBITDA from continuing operations plus Adjusted EBITDA from the stores sold to Walgreens up to each store’s respective sale date), for short-term incentive calculation purposes, for fiscal year 2018 was $818 million, which was below our annual plan target of $985 million, but above the threshold performance level of $640 million.  Based on performance against the adjusted goal, and as described in more detail below under “Cash

Incentive Bonuses,” our Named Executive Officers were paid bonuses at 74.8% of target for fiscal year 2018 performance. See Appendix A for a reconciliation of our Adjusted EBITDA, which is a non-GAAP measure, to net income under GAAP.

The performance targets for the long-term incentive awards granted to our Named Executive Officers in the form of performance stock in fiscal year 2018 are discussed in detail below. See “Long-Term Incentive Program—Performance Awards” on pages 27 to 28.

Objectives of Our Executive Compensation Program

All of our executive compensation and benefits programs are within the purview of the Compensation Committee, which bases these programs on the same objectives that guide the Company in establishing all of its compensation programs. The Compensation Committee also administers the Company’s equity incentive compensation plans. In establishing or approving the compensation of our Named Executive Officers in any given year, the Compensation Committee is generally guided by the following objectives:

·                              Compensation should be based on the level of job responsibility, individual performance, and corporate performance, and should foster the long-term focus required for success in the retail drugstore industry. As associates progress to higher levels in the organization, an increasing proportion of their pay is linked to Company performance and stockholder returns and to longer-term performance because they are in a position to have greater influence on longer-term results.

·                              Compensation should reflect the value of the job in the marketplace. To attract and retain a highly skilled, diverse work force, we must remain competitive with the pay of other employers who compete with us for talent.

·                              Compensation should reward performance. Our programs should deliver compensation that is related to our corporate performance. Where corporate performance falls short of expectations, the programs should deliver lower-tier compensation. In addition, the objectives of pay-for-performance and retention must be balanced. Even in periods of temporary downturns in overall corporate performance, the programs should continue to ensure that successful, high-achieving associates will remain motivated and committed to the Company to support the stability and future needs of the Company.

·                              To be effective, performance-based compensation programs should enable associates to easily understand how their efforts can affect their pay, both directly through individual performance accomplishments and indirectly through contributing to the Company’s achievement of its strategic and operational goals.

·                              Compensation and benefit programs should reward performance relative to consistent measures and goals at all levels of the organization. While the programs and individual pay levels will always reflect differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefit programs should be broadly similar across the organization.

·                              Compensation and benefit programs should attract associates who are interested in a career at Rite Aid.

The Compensation Committee’s Processes

The Compensation Committee has established a number of processes to assist it in ensuring that the Company’s executive compensation program is achieving its objectives. Among those are:

Assessment of Company performance.  The Compensation Committee uses Company performance measures in two ways. First, in assessing the linkage between actual total compensation and performance, the Compensation Committee considers various measures of Company and industry performance, such as comparable store sales growth, EBITDA growth, return on sales, debt leverage ratios, return on average invested capital and net assets and total stockholder return. In determining performance relative to the Company’s peer group (as discussed further below), the Compensation Committee does not apply a formula or assign these performance measures relative weights. Instead, it makes a subjective determination after considering such measures collectively. Second, as described in more detail below, the Compensation Committee has established specific Company target incentive/award levels and performance measures that determine the size of payouts under the Company’s two formula-based incentive programs—the annual cash incentive bonus program and performance awards granted under the Company’s long-term incentive program.

Assessment of competitive compensation levels.  The Compensation Committee, with the help of its independent compensation consultant Exequity LLP, assesses the Company’s programs relative to a peer group of retail organizations and published survey data. The peer group, updated for fiscal year 2018 to reflect the projected decline in the scope of Rite Aid’s operations following the planned divestiture of stores and distribution centers to WBA, was approved by the Compensation Committee in September 2017 after a comprehensive review. Because the Company has a limited number of publicly-traded direct competitors and because pharmacy sales (which account for over two-thirds of the Company’s revenue) are governed by third-party contracts, we reviewed potential peers relative to multiple criteria including:

·                              Competitors for executive talent, such as grocery store chains, discount department stores, pharmacy benefits managers, companies engaged in pharmaceutical distribution, and healthcare services organizations;

·                              Competitors for investment capital, such as companies considered peers by financial analysts, companies with a similar capital structure or companies whose stock price movement correlated most directly with Rite Aid;

·                              Companies with which Rite Aid competes for customers that have pharmacy operations, offer similar merchandise as Rite Aid, or provide healthcare services; and

·                              Companies of similar size based on revenue as well as enterprise value.

The resulting peer companies, which are considered to be the best representation of our target labor market, are listed below.

Fiscal Year 2018 Peer Group

Note:                  Revenue reflects trailing 12-month data through February 2018 as available per Standard & Poor’s Capital IQ.

The Compensation Committee compares the compensation levels of Rite Aid’s Named Executive Officers to peer company compensation levels in the aggregate, and also compares the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful.

In addition to peer group data, the Compensation Committee reviews market data based on specific functional responsibility for each executive from published survey data. The survey analysis targets data from similarly-sized retail organizations based on each executive’s functional responsibility. The surveys used in the analysis include Mercer’s 2017 Executive Remuneration Suite, Mercer’s 2017 Retail Compensation and Benefits Survey, and Towers Watson’s 2017 Survey Report on Top Management Compensation.

The Compensation Committee uses peer group and survey data primarily to ensure that the executive compensation program as a whole is competitive, meaning generally within 25% of the median range of comparative pay of the market when Rite Aid achieves the targeted performance levels. The Compensation Committee further designed the incentive plans in such a way that executives can earn above competitive levels for superior performance and below competitive levels if performance is below expectations. The Compensation Committee assesses overall alignment of the compensation program rather than benchmarking a specific target position with consideration of factors, such as Company and individual performance, how executive roles function within Rite Aid, concerns about executive retention, and availability of equity compensation. The Compensation Committee assesses Rite Aid’s performance relative to its peer group on both a one- and three-year basis and observed

alignment of performance with actual total direct compensation levels for the executives in the aggregate.

In fiscal year 2018, management engaged Mercer, a compensation consultant, to provide management with compensation information for certain executive officers. Pursuant to the terms of its retention, Mercer reported directly to management, and not to the Compensation Committee, although the Compensation Committee did review recommendations and analysis prepared by management and Mercer in determining fiscal year 2018 compensation for the Named Executive Officers.

Total compensation review.  The Compensation Committee reviews each executive’s base pay, annual bonus, and long-term incentives annually with the guidance of the Compensation Committee’s independent compensation consultant. Following the fiscal year 2018 review, the Compensation Committee determined that the target level and components of compensation for fiscal year 2018 were competitive and reasonable in the aggregate.

Components of Executive Compensation for Fiscal Year 2018

For fiscal year 2018, the regular compensation program for our Named Executive Officers consisted of four primary components: (i) base salary, (ii) a cash incentive bonus opportunity under the Company’s annual incentive bonus plan, (iii) long-term incentives consisting of restricted stock and performance-based restricted stock units and (iv) a benefits package, including a Supplemental Executive Retirement Program (“SERP”). A significant portion of total compensation under the program is variable, meaning a significant portion is subject to performance and is comprised of target annual incentives and target long-term incentives.

The Compensation Committee believes that this program appropriately balances the mix of cash and equity compensation, the mix of currently-paid and longer-term compensation, and the security of base benefits in a way that best furthers the compensation objectives discussed above. The chart below shows the overall mix of base salary, target annual incentives, target long-term incentives, and contributions under the SERP for Messrs. Standley, Crawford, Karst, Everett, Montini and Ms. Konrad.

Target Total Remuneration(1)
Compensation Component as a % of Total Remuneration for Fiscal Year 2018

(1)                     Target Total Remuneration represents the sum of base salary, target annual incentives, target long-term incentives, and SERP contributions. Target Total Compensation does not include (i) the value of broad-based benefits provided to all employees, (ii) components of all other compensation (except the SERP) shown in the Summary Compensation Table and (iii) retention awards.

Base Salary

Base salary is one element of an executive’s annual cash compensation during employment. The value of base salary reflects the executive’s long-term performance, skill set and the market value of that skill set. In setting base salaries for fiscal year 2018, the Compensation Committee considered the following factors:

Pay levels at comparable companies.  As noted above, the Compensation Committee uses peer group data to test for the reasonableness and competitiveness of base salaries, but it also exercises subjective judgment in view of the Company’s compensation objectives.

Internal relativity.  Meaning the relative pay differences for different job levels.

Individual performance.  Except for increases associated with promotions or increased responsibility, increases in base salary for executives from year to year are generally limited to minimal adjustments to reflect individual performance.

Consideration of the mix of overall compensation.  Consistent with our compensation objectives, as executives progress to higher levels in the organization, a greater proportion of overall compensation is directly linked to Company performance and stockholder returns. Mr. Standley’s overall compensation, for example, is more heavily weighted toward short- and long-term incentive compensation (approximately 85% in the aggregate as shown in the bar chart above) than that of the other Named Executive Officers.

The Compensation Committee reviewed the Named Executive Officers’ base salaries in April of fiscal year 2018 and considered the principles described above under “The Compensation Committee’s Processes” in establishing the Named Executive Officers’ base salaries for the fiscal year as noted in the chart below.  In addition to the annual performance increases, Bryan Everett and Jocelyn Konrad were awarded an additional increase in September in connection with the promotion to Chief Operating Officer, Rite Aid Stores, and an additional merit increase, respectively.

(a)                                 Effective October 2, 2017, Mr. Crawford was hired as President and Chief Operating Officer.

(b)                                 Mr. Montini retired from the Company on December 15, 2017.

Cash Incentive Bonuses

The Company established an annual incentive plan in order to incentivize the Named Executive Officers to meet the Company’s Adjusted EBITDA target for fiscal year 2018. The Compensation Committee establishes a target percentage of salary for each participant at the beginning of the fiscal year and approves the financial goals required for the Company to pay an award. Payouts for the Named Executive Officers are then determined by the Company’s financial results for the year relative to the predetermined performance measures. As shown in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation,” incentives were paid to Named Executive Officers for fiscal year 2018 performance.

Bonus targets.  Targets for each Named Executive Officer were determined based on job responsibilities, internal relativity, and peer group and survey data. The Compensation Committee’s objective was to set bonus targets such that total annual cash compensation (including base salary and annual incentive assuming a target payout) was generally aligned with the market with a substantial portion of that compensation linked to corporate performance. Consistent with our executive compensation philosophy, individuals with greater job responsibilities had a greater proportion of their total cash compensation tied to Company performance through the incentive plan. The Compensation Committee, as a result, established the following targets for fiscal year 2018:

Annual Incentive Opportunity

(a)         The amount of annual incentive opportunity earned by Mr. Crawford was pro-rated based on his start date effective October 2, 2017 until the end of fiscal year 2018.

(b)         Effective as of September 6, 2017, the target payout (as a percentage of annual base salary) for Mr. Everett was increased to 100% in connection with his promotion to his current role.  The amount of annual incentive opportunity earned by Mr. Everett was pro-rated such that the target payout of 100% was applied from September 6, 2017 until the end of fiscal year 2018.

(c)          Mr. Montini received a pro-rated portion of his annual incentive based on the earned amount for the fiscal year pro-rated for the number of accounting periods (full months in the fiscal year) before his retirement on December 15, 2017.

The Compensation Committee believes that using Adjusted EBITDA as the measure for the annual incentive plan appropriately encourages officers, including the Named Executive Officers, to focus on improving operating results which ultimately drive stockholder value. EBITDA growth has historically shown a strong positive correlation with three-year and five-year total stockholder return for Rite Aid and its peer group. The majority of Rite Aid’s peer companies use an EBITDA measure in their annual incentive plans. Based on Rite Aid’s current financial situation and capital structure, the Compensation Committee believes that Adjusted EBITDA is the best indicator of Rite Aid’s operating performance. The measure is tracked regularly and is clearly understood by the officers. Officers can impact the measure by taking actions to improve the operating performance of our stores. In addition, the Company regularly communicates Adjusted EBITDA to the investment community.

Under the plan formula, payouts can range from 0% to 200% of bonus targets depending on Company performance. The Compensation Committee initially established an Adjusted EBITDA performance target of $1,022 million for fiscal year 2018, based on the then-current financial plan targets. This performance level target, based on the financial plan, was below our fiscal year 2017 performance of $1,137 million as a result of continuing reimbursement rate pressure and the fact that fiscal year 2018 had one (1) less week than fiscal year 2017. The Compensation Committee also established a threshold at which management could be rewarded at 50% of bonus target at achievement of Adjusted EBITDA of $869 million (85% of target), and the Compensation Committee approved a maximum at which management could be rewarded at 200% of bonus target at achievement of Adjusted EBITDA of $1,124 million (110% of target).

At its July 2017 meeting, the Compensation Committee re-evaluated the likelihood of achieving Adjusted EBITDA results above the threshold performance of $869 million after termination of the WBA merger agreement and execution of the subsequent asset sale to divest stores and distribution centers to WBA. During this meeting, the Compensation Committee determined based on the projected financial impact of the loss of certain pharmacy services contracts and the Company being excluded from certain pharmacy networks in which it participated last year, that such level of performance was extremely unlikely to be attained. Accordingly, in the interest of maintaining a strong incentive aligned with short-term performance following considerable ongoing challenges and uncertainty related to the extended duration of the potential WBA merger process, as well as no payments and projected below-target or no payments under recent and in-cycle annual and long-term performance incentives, the Compensation Committee lowered the threshold level of performance at which management could be rewarded with a bonus of 50% of target, and approved a threshold Adjusted EBITDA of $664 million (65% of target). At the same time, the Compensation Committee also decided to increase the maximum level of performance at which management could be rewarded at 200% of bonus target, and approved a maximum Adjusted EBITDA goal of $1,380 million (135% of target).

Finally, in February 2018, the Compensation Committee modified the annual incentive performance framework to reflect the impact of the reduction of Adjusted EBITDA resulting from the divestiture of stores to WBA.  Specifically, the Consolidated Adjusted EBITDA target was reduced by $37 million to $985 million, threshold Consolidated Adjusted EBITDA remained 65% of target (reduced to $640 million), and maximum Consolidated Adjusted EBITDA remained 135% of target ($1,330 million).

In fiscal year 2018, challenges associated with the extended duration of the WBA merger process and its ultimate termination, the asset sale, as well as the impact of the loss of certain pharmacy services contracts and being excluded from certain pharmacy networks in which we participated last year had a substantial negative impact on our fiscal year 2018 results, and Rite Aid’s actual Consolidated Adjusted EBITDA was $818 million, which was below the revised target performance level, but above the revised threshold performance level, resulting in bonus payments at 74.8% of the revised target. Consolidated Adjusted EBITDA consists of Adjusted EBITDA from continuing operations plus Adjusted EBITDA from the stores sold to Walgreens up to each store’s respective sale date. As discussed in greater detail in Appendix A, we define Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, goodwill impairment, inventory write-downs related to store closings, debt retirements, the WBA merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, severance and costs related to distribution center closures, gain or loss on sale of assets, and revenue deferrals related to our customer loyalty program). We reference this particular non-GAAP financial measure not only as a basis for incentive compensation but also in our corporate decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and external comparisons to competitors’ historical operating performance.

Fiscal Year 2018 Annual Incentive Plan Performance Goal

Long-Term Incentive Program

Crawford Onboarding Grant.  In connection with joining the Company on October 2, 2017 as President and Chief Operating Officer, Mr. Crawford received 1,000,000 stock options that will vest in four equal annual installments, and 975,610 restricted shares that will vest in three equal annual installments. Mr. Crawford did not otherwise participate in the long-term incentive program set forth below.

Long-term incentive target opportunity.  The purpose of the regular long-term incentive program is to support the long-term perspective necessary for continued success in our business and focus our Named Executive Officers on creating long-term, sustainable stockholder value. Our annual long-term incentive (LTI) targets for each Named Executive Officer as of the date of grant July 17, 2017 are shown below:

Long-Term Incentive Targets

(a)         Mr. Crawford’s long-term incentive target will apply beginning in fiscal year 2019. Following his start date of October 2, 2017, Mr. Crawford received 1,000,000 stock options and 975,610 restricted shares, but did not otherwise participate in the long-term incentive program for fiscal year 2018.

(b)         Subsequent to the July 17, 2017 LTI grant, the Compensation Committee recommended and subsequently approved an increase to Mr. Karst’s and Mr. Everett’s LTI target percentage to 250% and 200%, respectively.

(c)          Mr. Montini forfeited any unregisteredLTI granted to him on July 17, 2017 with his retirement on December 15, 2017.

The Compensation Committee reviewed available peer group data and found that the design of the long-term incentive program is reasonably aligned with general retail industry market practice. Target grant values for individual executive officers were established based on individual performance and internal relativity. Consistent with the Company’s compensation philosophy, executive officers at higher levels received a greater proportion of total pay in the form of long-term incentives.

Long-term incentive mix.  In fiscal year 2018 we used the following types of awards:

In determining the overall mix of long-term incentive vehicles, the following factors were considered:

·Risk/reward tradeoffs:  Using multiple long-term incentive vehicles can balance the need for a strong performance-based program against risk to executives.

·Performance measurement:  Using a combination of vehicles allows the Company to focus executives on both stock price appreciation and achievement of consistent operating results (as indicated by Adjusted EBITDA and other measures) which we believe leads to creation of value for stockholders.

·Management of share usage and market practice:  Rite Aid considers market practice concerning both share usage and competitive long-term incentive levels. Rite Aid uses either a stock-based performance vehicle or a cash-based performance vehicle that was tied to the stock price which allows the delivery of a long-term incentive opportunity which is aligned with peer companies and retailers of similar size. The target LTI mix has been selected to align the maximum opportunity for executives and associates with our stockholder return.

The Compensation Committee’s process for setting grant dates is discussed below. On the approval date, those values are converted to the equivalent number of shares based on the closing price of the Company’s common stock on the date of approval.

Grant timing.  The Compensation Committee has a policy that annual long-term incentive awards (other than special or new hire grants) will be approved by the Compensation Committee once a year at its annual meeting held in connection with the annual stockholders meeting, with a grant date equal to the later of the second business day after release of the Company’s first quarter earnings or the

date of approval. Grants are made to the Named Executive Officers at the same time as awards are made to all other associates as part of the annual grant process.

Special awards.  From time to time, the Company may make grants in addition to the annual equity securitiesgrant, including those to Named Executive Officers. Typically, these grants include awards to new hires, promotional awards, or retention awards. Special awards can also be utilized to provide special performance incentives in connection with specific corporate or financial goals of the Company.  Other than a grant of restricted shares provided to Mr. Everett upon his promotion in September of 2017, as shown below in the “Grants of Plan-Based Awards Table For Fiscal Year 2018,” no special awards were made to our Named Executive Officers in fiscal year 2018.

Performance Awards

Performance awards granted to the Named Executive Officers under the regular long-term incentive program are in the form of units, which are denominated in a target number of shares and payable in Company stock or cash if the designated Company performance goals are achieved over the prescribed performance period. Payouts can range from 0% (for performance below threshold) to 250% of target (for performance at or above maximum). Performance awards are intended to align interests of executives with those of stockholders through the use of measures the Company believes drive its long-term success. Performance awards are normally granted annually and are structured as a targeted number of units based on the Company’s achievement of specific performance levels with payout occurring after a three-year period.

For the 2016 and 2017 performance award grants (“2016-2018 Plan” and the “2017-2019 Plan”), the Compensation Committee based 80% of the award on the achievement of three-year (fiscal year 2016-fiscal year 2018 and fiscal year 2017-fiscal year 2019) cumulative Adjusted EBITDA goals and the remaining 20% on three-year (fiscal year 2016-fiscal year 2018 and fiscal year 2017-fiscal year 2019) return on net asset goals. The Compensation Committee also added a provision for each cycle, subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the respective three-year measuring periods. The Compensation Committee believes this provision further aligns the interests of our executives with those of our stockholders and adds an additional incentive for them to create sustainable long-term value for the Company.

For the 2018 performance award grants (“2018-2020 Plan”), the Compensation Committee also based 80% of the award on the achievement of Adjusted EBITDA goals and the remaining 20% on return on net assets performance. However, due to the significant uncertainty during the transition of our business in 2018, the 2018-2020 Plan financial performance goals are based on the accumulation of one-year goals set for 2019 and 2020 only. As in prior cycles, the Compensation Committee added a provision subjecting the award to modification based on our relative stockholder return versus the Russell 3000 Index over the full 2018-2020 performance period.

2016-2018 Plan.  Under the 2016-2018 Plan, participants have the opportunity to earn shares of Rite Aid stock, contingent on cumulative Company financial performance for the three-year period covered by this report, nor have we repurchased any equity securities duringspanning fiscal year 2016 through fiscal year 2018. Such financial performance is based 80% on the period covered by this report.

Item 6.    Selected Financial Data

Such consolidated financial statements have been adjustedAdjusted EBITDA goals and 20% on return on net asset goals. The Compensation Committee set a three-year cumulative target for both metrics. In addition, in order to give effectfurther align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable

long-term value for the restatement as discussed in Note 21Company, the Compensation Committee also determined to subject the Consolidated Financial Statements.

The following selected financial data should be read in conjunction with "Management's Discussion and Analysisaward to modification of Financial Condition and Results+/- 25% based on our relative stockholder return versus the Russell 3000 Index over the three-year measuring period. For fiscal years 2016-2018, actual Adjusted EBITDA of Operations" and$3,357 million was below the audited consolidated financial statements and related notes appearingthree-year performance threshold of $3,618 million. Actual return on pages 44-85.

				Fiscal Year Ended
				February 28, 2004 (52 weeks)				March 1, 2003 (52 weeks)				March 2, 2002 (52 weeks)				March 3, 2001 (53 weeks)(1)				February 26, 2000 (52 weeks)(1)
				(Dollars in thousands, except per share amounts)
Summary of Operations:
Revenues				$	16,600,449			$	15,791,278			$	15,166,170			$	14,516,865			$	13,338,947
Costs and expense:
Cost of goods sold, including occupancy costs					12,568,729				12,036,003				11,695,871				11,152,285				10,219,168
Selling, general and administrative expenses					3,594,405				3,471,573				3,422,383				3,412,442				3,651,248
Stock-based compensation expense (benefit) (2)					29,821				4,806				(15,891	)			45,865				(43,438	)
Goodwill amortization					—				—				21,007				20,670				24,457
Store closing and impairment charges					22,074				135,328				251,617				388,078				139,448
Interest expense					313,498				330,020				396,064				649,926				542,028
Interest rate swap contracts					—				278				41,894				—				—

				Fiscal Year Ended
				February 28, 2004 (52 weeks)				March 1, 2003 (52 weeks)				March 2, 2002 (52 weeks)				March 3, 2001 (53 weeks)(1)				February 26, 2000 (52 weeks)(1)
				(Dollars in thousands, except per share amounts)
Loss (gain) on debt modifications and retirements, net (3)					35,315				(13,628	)			221,054				100,556				—
Share of loss from equity investments					—				—				12,092				36,675				15,181
Loss(gain) on sale of assets and investments, net					2,023				(18,620	)			(42,536	)			(6,030	)			(80,109	)
Total cost and expenses					16,565,865				15,945,760				16,003,555				15,800,467				14,467,983
Income (loss) from continuing operations before income taxes and cumulative effect of accounting change					34,584				(154,482	)			(837,385	)			(1,283,602	)			(1,129,036	)
Income tax (benefit) expense					(48,795	)			(41,940	)			(11,745	)			148,957				(8,375	)
Income (loss) from continuing operations before cumulative effect of accounting change					83,379				(112,542	)			(825,640	)			(1,432,559	)			(1,120,661	)
Income (loss) from discontinued operations, net of income tax expense of $13,846, and $30,903					—				—				—				11,335				9,178
Loss on disposal of discontinued operations, net of income tax benefit of $734					—				—				—				(168,795	)			—
Cumulative effect of accounting change, net of income tax benefit of $18,200					—				—				—				—				(27,300	)
Net income (loss)				$	83,379			$	(112,542	)		$	(825,640	)		$	(1,590,019	)		$	(1,138,783	)
Basic and diluted net income (loss) per share:
Income (loss) from continuing operations				$	0.11			$	(0.28	)		$	(1.81	)		$	(5.15	)		$	(4.36	)
(Loss) income from discontinued operations					—				—				—				(0.50	)			.04
Cumulative effect of accounting change					—				—				—				—				(0.11	)
Net income (loss) per share				$	0.11			$	(0.28	)		$	(1.81	)		$	(5.65	)		$	(4.43	)
Year-End Financial Position:
Working capital				$	1,894,247			$	1,676,889			$	1,580,218			$	1,955,877			$	752,657
Property, plant and equipment, net					1,882,763				1,867,830				2,095,552				3,040,790				3,445,863
Total assets					6,245,634				6,132,766				6,491,281				7,913,693				9,845,601
Total debt (4)					3,891,666				3,862,628				4,056,468				5,894,548				6,612,868
Redeemable preferred stock (5)					—				19,663				19,561				19,457				19,457
Stockholders' (deficit) equity					(8,277	)			(129,938	)			(7,527	)			(373,619	)			414,120
Other Data:
Cash flows from continuing operations provided by (used in):
Operating activities				$	227,515			$	305,383			$	16,343			$	(704,554	)		$	(623,098	)
Investing activities					(242,150	)			(72,214	)			342,531				677,653				(504,112	)
Financing activities					(15,931	)			(211,903	)			(107,109	)			(64,324	)			905,091
Capital expenditures					267,373				116,154				187,383				141,504				641,070
Cash dividends declared per common share				$	0			$	0			$	0			$	0			$	.3450
Basic weighted average shares					515,822,000				515,129,000				474,028,000				314,189,000				259,139,000
Diluted weighted average shares (6)					525,831,000				515.129,000				474,028,000				314,189,000				259,139,000
Number of retail drugstores					3,382				3,404				3,497				3,648				3,802
Number of associates					72,500				72,000				75,000				75,500				77,300

(1)	PCS was acquired on January 22, 1999. On October 2, 2000, we sold PCS. Accordingly, our Pharmacy Benefit Management ("PBM") segment was reported as a discontinued operation in the fiscal years ended March 3, 2001 and February 26, 2000.

(2)

Stock based compensation expense for the year ended February 28, 2004 was determined using the fair value method set forth in Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation". Stock based compensation expense (benefit) for the fiscal years ended March 1, 2003, March 2, 2002, March 3, 2001 and February 26, 2000 was determined using the intrinsic method set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".

(3)	Amounts related to the early extinguishment of debt that were previously recognized as an extraordinary item outside of results from continuing operations were reclassified as a gain or loss on debt retirements and modifications, which is a component of income or loss from continuing operations.

(4)	Total debt included capital lease obligations of $183.2 million, $176.2 million, $182.6 million, $1.1 billion, and $1.1 billion, as of February 28, 2004, March 1, 2003, March 2, 2002, March 3, 2001, and February 26, 2000, respectively.

(5)	Redeemable preferred stock was included in "Other Non-current liabilities" as of February 28, 2004.

(6)	Diluted weighted average shares for the year ended February 28, 2004 included the impact of stock options, as calculated under the treasury stock method.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Net income for fiscal 2004net assets was $83.4 million,2.4% compared to a net losstarget of $112.5 million in fiscal 2003 and $825.6 million in fiscal 2002. Reasons18.6%. Accordingly, no awards were earned under the 2016-2018 Plan.

2017-2019 Plan.  Under the 2017-2019 Plan, participants have the opportunity to earn shares of Rite Aid stock, contingent on cumulative Company financial performance for the substantial improvementthree-year period spanning fiscal year 2017-fiscal year 2019. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset goals. In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification of +/-25% based on our relative stockholder return versus the Russell 3000 Index over the three-year measuring period.

2018-2020 Plan.  Under the 2018-2020 Plan, participants have the opportunity to earn cash payments after the end of fiscal year 2020, contingent on performance relative to accumulated one-year Company financial performance goals for each of fiscal year 2019 and fiscal year 2020. Such financial performance is based 80% on the Adjusted EBITDA goals and 20% on return on net asset goals. The value of a unit is tied to the stock price with a maximum value of 300% of the grant date stock price.  This aligns the interests of our executives with those of our stockholders.  In addition, in order to further align the interests of our executives with those of our stockholders and add an additional incentive for them to create sustainable long-term value for the Company, the Compensation Committee also determined to subject the award to modification based on our relative stockholder return versus the Russell 3000 Index over the three-year vesting period. As shown in the table below, payouts can range from 0% (for performance below threshold) to 250% of the target number of units (for performance at or above maximum). 37.5% of the target unit award can be earned for performance at threshold levels.

2018-2020 Plan: Performance-Based Restricted Stock Units

Executive (a)		Target Award ($)		Threshold Award (# of Units)		Target Award (# of Units)		Maximum Award (# of Units)
John T. Standley		3,051,279		495,338		1,320,900		3,302,250
Darren W. Karst		830,214		134,775		359,400		898,500
Bryan Everett		356,200		77,100		154,200		385,500
Jocelyn Konrad		309,078		50,175		133,800		334,500
Enio Anthony Montini, Jr.(b)		361,053		58,613		156,300		390,750

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(a)                                 Because Mr. Crawford did not commence employment with the Company until after the date the 2018-2020 Plan was established, he did not participate in the 2018-2020 Plan. On his October 2, 2017 start date, Mr. Crawford received 1,000,000 stock options and 975,610 restricted shares.

(b)                                 Mr. Montini forfeited his 2018-2020 Performance-Based Restricted Stock Units with his retirement on December 15, 2017.

Restricted Stock

Restricted stock grants are intended to support retention of executives and focus them on long-term performance because they generally vest over a multi-year period (three years or longer) and are tied to the value of our stock. The risk profile of restricted stock is aligned with stockholders, as it can motivate executives to both increase and preserve stock price. The table below summarizes 2018 restricted stock awards:

2018 Restricted Stock Awards

Executive		Award Value ($)			# of Shares
John T. Standley		$	3,051,375		1,320,900
Kermit Crawford(a)		$	2,000,000		975,610
Darren W. Karst		$	830,249		359,400
Bryan Everett(b)		$	1,324,202		554,200
Jocelyn Konrad		$	309,000		133,800
Enio Anthony Montini, Jr.(c)		$	361,080		156,300

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(a)                                 On his October 2, 2017 start date, Mr. Crawford received 975,610 restricted shares as shown.

(b)                                 On his September 6, 2017 promotion to Chief Operating Officer, Rite Aid Stores, Mr. Everett received 400,000 restricted shares.

(c)                                  Mr. Montini forfeited his 2018 restricted stock award with his retirement on December 15, 2017.

Retention Efforts in Fiscal Year 2018

Rite Aid had entered into individual retention agreements for our Named Executive Officers (excluding Messrs. Standley and Crawford) and other key officers who are not Named Executive Officers in coordination with the WBA merger agreement, as previously disclosed.  These awards, which were to be paid 120 days after completion of the merger based on the completion and continued employment, were not paid out because the merger condition was not satisfied.  With the termination of the WBA merger agreement, the Compensation Committee determined to provide new retention awards for an amount equal to approximately one half of the original retention amount payable on November 1, 2017, as shown in the Summary Compensation Table.  This award was viewed as honoring a commitment to the leaders related to the merger, the completion of which was outside their control.

In addition to the fiscal year 2018 regular compensation program for the Named Executive Officers, Rite Aid has entered into individual retention agreements with each of the Named Executive Officers, as well as other key officers who are not named executive officers, to enhance employee retention and promote corporate performance, amidst significant volatility and uncertainty related to restructuring the company. The outstanding retention agreements with each Named Executive Officer other than Messrs. Standley and Crawford generally provide for the lump-sum payment of the retention awards in equal installments on August 1, 2018 and May 1, 2019, subject to continued employment through such retention date or upon an earlier qualifying termination.

The retention agreement with Mr. Crawford generally provides for the lump-sum payment of the retention award on October 1, 2019, subject to continued employment through such retention date or an earlier qualifying termination of employment.

The retention agreement with Mr. Standley generally provides for the lump-sum payment of the retention award (x) on the completion of the Albertson’s Merger if Mr. Standley has not been appointed to serve as chief executive officer of the combined company or (y) on the date that the Rite Aid Board of Directors determines that the transactions contemplated by the Merger Agreement will not be consummated, in each case, subject to continued employment through each such retention date or an earlier qualifying termination of employment.  The retention agreement with Mr. Standley will expire unpaid in the event that Mr. Standley will serve as the chief executive officer of the combined company following completion of the Merger.

Under the retention agreements, Mr. Standley could earn a retention payment of $3,000,000, Mr. Crawford could earn a retention payment of $1,000,000, Mr. Karst could earn a retention payment of $830,250, Mr. Everett could earn a retention payment of $600,000 and Ms. Konrad could earn a retention payment of $450,000.

Post-Retirement Benefits

Supplemental Executive Retirement Program.  Each of the Named Executive Officers receives benefits under a defined contribution supplemental executive retirement plan. Under the SERP, Rite Aid credits each participant with a specific sum to an individual account established for the participant, on a monthly basis while the participant is employed. The amount credited is equal to 2% of the executive officer’s annual base compensation. The participants are able to select among a choice of earnings indexes, and their accounts are credited with earnings that mirror the investment results of such indexes. Participants vest in fiscal 2004their accounts at the rate of 20% per year for each calendar year of participation in the SERP at a five-year rolling rate with the entire account balance for each participant vesting upon death or total disability of the participant, termination without cause during the 12-month period following a “change in control” of the Company as defined in the SERP or upon termination of employment at age 60 or greater with at least five years of participation in the SERP. SERP payments may be delayed due to certain tax rules or deferral elections made by the executive.

Other Post-Employment and Change in Control Benefits

To attract and retain highly skilled executives and to provide for certainty of rights and obligations, Rite Aid has historically provided employment agreements to its executive officers, including our Named Executive Officers. The terms of the employment agreements are described in more detail under the caption “Executive Employment Agreements.” Additional information regarding the severance and change in control benefits provided under the employment agreements is described under the section entitled “Executive Compensation—Potential Payments Upon Termination or Change in Control.”

Deductibility Cap on Executive Compensation

The Compensation Committee is aware that Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), treats certain elements of executive compensation in excess of

30

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