SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number 1-5742
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
The Rite Aid 401(k) Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
THE RITE AID 401(K) PLAN
TABLE OF CONTENTS
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Page
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND 2001 AND FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-9
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2002:
Form 5500, Schedule H, Line 4i - Schedule of Assets
(Held at End of Year) 10
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2001:
Form 5500, Schedule H, Line 4i - Schedule of Assets
(Held at End of Year) 11
INDEPENDENT AUDITORS' REPORT
To the Plan Administrator and Participants of
The Rite Aid 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of The Rite Aid 401(k) Plan (formerly the Rite Aid Employee Investment
Opportunity Plan) (the "Plan") as of December 31, 2002 and 2001, and the related
statements of changes in net assets available for benefits for each of the three
years in the period ended December 31, 2002. These financial statements are the
responsibility of the Plan Administrator. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Plan Administrator, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2002 and 2001, and the changes in net assets available for benefits for each of
the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
table of contents are presented for the purpose of additional analysis and are
not a required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These schedules are the responsibility of the Plan Administrator. Such
supplemental schedules have been subjected to the auditing procedures applied in
our audits of the basic financial statements and, in our opinion, are fairly
stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Philadelphia Pennsylvania
May 12, 2003
THE RITE AID 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
ASSETS:
Investments $ 743,917,852 $ 802,418,250
Contributions receivable:
Employer 4,745,223 2,452,208
Employee 1,084,292 1,852,744
------------- -------------
Total contributions receivable 5,829,515 4,304,952
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 749,747,367 $ 806,723,202
============= =============
See notes to financial statements.
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THE RITE AID 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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Year ended December 31,
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2002 2001 2000
ADDITIONS:
Employee contributions $ 60,957,435 $ 47,831,955 $ 47,803,384
Employer contributions 29,050,345 8,015,466 7,684,986
Rollover contributions (See Note 1) 1,752,991 2,358,766 1,412,941
Investment income 31,569,545 21,409,961 20,826,774
----------- ---------- ----------
Total additions 123,330,316 79,616,148 77,728,085
DEDUCTIONS:
Net depreciation in fair value of investments 119,444,555 64,638,360 86,972,216
Benefit payments 59,344,468 61,068,340 96,479,635
Loan defaults 1,517,128 3,577,925 3,471,064
----------- ---------- ----------
Total deductions 180,306,151 129,284,625 186,922,915
DECREASE IN NET ASSETS (56,975,835) (49,668,477) (109,194,830)
AVAILABLE FOR BENEFITS
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR 806,723,202 856,391,679 965,586,509
------------ ------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $749,747,367 $ 806,723,202 $ 856,391,679
============ ============= =============
See notes to financial statements.
-3-
THE RITE AID 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
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1. DESCRIPTION OF THE PLAN
The following brief description of The Rite Aid 401(k) Plan (formerly
known as the Rite Aid Employee Investment Opportunity Plan) (the "Plan")
is provided for general informational purposes only. Participants should
refer to the Plan agreement for a more complete description of the
Plan's provisions.
General--The Plan is a defined contribution plan. An individual account is
established for each participant and provides benefits that are based on
(a) amounts the participant and Rite Aid Corporation (the "Company" or
"Plan Sponsor") contributed to a participant's account, (b) investment
earnings (losses), and (c) any forfeitures allocated to the account, less
any administrative expenses charged to the Plan.
On December 11, 2002, the Plan Sponsor created the Trustee Search
Committee ("TSC"), charged with engaging an institutional trustee for
the Plan. Effective April 1, 2003, The Northern Trust Company was
engaged to serve as Plan trustee with respect to all assets other than
the Rite Aid Corporation Company Stock Fund. LaSalle Bank National
Association was engaged to serve as the Plan trustee with respect to the
Rite Aid Corporation Company Stock Fund. On that date, the TSC was
renamed the Employee Benefits Administration Committee and named plan
administrator ("Plan Administrator"). The Plan Administrator is
responsible for the preparation of the Plan's financial statements.
Participation--Prior to January 1, 2002, substantially all non-union Plan
Sponsor employees became eligible to participate in the Plan after
attaining age 21 and completing one year of service (at least 1,000
hours).
Effective January 1, 2002, substantially all non-union Plan Sponsor
employees became eligible to participate in the Plan after attaining age
21 and completing three months of service. Participants of the Plan are
eligible for matching contributions upon attaining age 21 and completing
one year of service (at least 1,000 hours).
Contributions--Prior to January 1, 2002, participants contributed a
portion of pretax annual compensation up to the maximum dollar limit, as
defined in the Plan. Participants also contributed amounts representing
distributions from other qualified defined benefit or defined contribution
plans. The Plan Sponsor matched 40% of each participant's pretax payroll
contribution, not to exceed 3% of the participant's annual pretax
compensation, up to $1,200.
-4-
Effective January 1, 2002, participants may contribute a portion of pretax
annual compensation up to the maximum dollar limit, as defined in the
Plan. Participants over age 50 may make additional pre-tax contributions,
as defined in the Plan. The Plan Sponsor matches 100% of a participant's
pretax payroll contributions, up to a maximum of 3% of such participant's
pretax annual compensation. Thereafter, the Plan Sponsor will match 50% of
the participant's additional pretax payroll contributions, up to a maximum
of 5% of such participant's pretax annual compensation, up to $8,000.
Various settlement agreements have been entered into with respect to
litigation involving the Company common stock held by the Plan. Under
these settlement agreements, certain additional contributions will be
made to the Plan as restorative payments. These restorative payments are
in addition to the contributions otherwise made to the Plan. The
restorative payments will be allocated to the accounts of certain
participants (as described in the settlement agreement) whose accounts
under the Plan included investments in the Company common stock. The
restorative payments will be fully vested when made, and will be
commingled with the eligible individuals' before-tax contributions. Once
the full amount of the restorative payments is received by the Plan,
there will be no further contributions stemming from these settlement
agreements. Participants have been or will be advised if they are
entitled to share in any of the restorative payments. No restorative
payment amounts have been recorded in the Statement of Net Assets
Available for Benefits.
One of the settlement agreements also requires that the Company maintain
the safe-harbor matching formula from 2003 through 2006. In addition,
subject to the terms of that settlement agreement, the Company must make a
supplemental matching contribution in years 2003 through 2006 if the total
dollar amount of the matching contribution for all participants for each
and any of those years is less than the total dollar amount of the 2002
matching contribution to the Plan. If a supplemental matching contribution
is made, it will be allocated to the accounts of then-current Plan
participants who received a regular matching contribution in proportion to
each participant's regular matching contribution.
Investment Options--The Plan provides a participant the discretion of
investing the participant's account balance in up to twelve funds. The
funds vary in degree of risk and investment objective.
Payment of Benefits--Upon termination of service, a participant may elect
to receive benefit distributions in one of several forms, including
annuities, installment payments or lump sum payments. In certain cases,
spousal consent may be required in order to elect a form of distribution
other than a joint and survivor annuity. Benefits are payable upon
retirement, termination of employment, or the death or disability of the
participant. In certain circumstances, benefits may be paid to a
participant prior to their termination of employment.
Loans--Participants may elect to borrow against the participant's vested
balance at a reasonable rate of interest as determined by the Plan
Administrator. A participant may borrow up to 50% of their vested balance,
with a maximum loan of $50,000. Effective January 1, 2002, a participant
may only have one loan outstanding at any one time.
-5-
Vesting--Participants are immediately vested in all employee contributions
credited to the participant's accounts plus actual earnings (losses)
thereon. Prior to January 1, 2002, vesting in the Plan Sponsor's
contributions is based on years of service, as defined in the Plan
document. A participant becomes fully vested in the Plan Sponsor's
contributions upon the participant's death, disability, attainment of
normal retirement age while employed, or the occurrence of a Plan
termination. If not vested earlier for one of the foregoing reasons, and
not subject to other exceptions described in the Plan document, a
participant's account balances vests according to the following schedule:
Years of Service Percent
--------------------- --------------
2 20%
3 40%
4 60%
5 80%
6 or more 100%
Effective January 1, 2002, a participant is immediately vested in all Plan
Sponsor contributions made after January 1, 2002.
Forfeitures--Prior to January 1, 2002, when a participant withdrew from
the Plan prior to becoming fully vested, any forfeited portion of the
participant's account was (i) used to pay administrative expenses of the
Plan, (ii) used to reduce the Plan Sponsor's non-elective contributions in
the Plan, or (iii) allocated or reallocated to all or certain
participants' accounts as permitted by the Plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting--The accompanying financial statements have been
prepared on the accrual basis of accounting.
Investments--The Plan's investments are stated at fair value, except the
Guaranteed Interest Account, as measured by quoted prices in an active
market. Realized gain or loss on investment transactions is determined
using the first-in, first-out method; investment transactions are recorded
at trade date. Interest income is recorded on the accrual basis. Dividend
income is recognized on the ex-dividend date.
The Plan had 3,070,060 and 3,315,753 shares of Company common stock at
December 31, 2002 and 2001, respectively.
The Guaranteed Interest Account ("GIA") is a group annuity insurance
product issued by Prudential. Interest on the GIA is credited daily.
Prudential declares the current interest rate on each successive calendar
quarter which remains in effect until the end of the following four
quarters for contributions received during that calendar quarter. The GIA
is deemed to be fully benefit responsive; therefore, it is presented at
contract value which approximates fair value. The average yields were
4.49%, 5.06% and 5.31% for 2002, 2001 and 2000, respectively. As of
December 31, 2002 and 2001, the crediting interest rates were 3.75% and
4.50%, respectively.
Administrative Expenses--Under the terms of the Plan agreement, costs
relating to Plan administration may be paid by the Plan Sponsor. For the
years ended December 31, 2002, 2001 and 2000, the Plan Sponsor has paid
substantially all administrative expenses.
Investment Income--Investment income for the year ended December 31, 2002
includes proceeds from the de-mutualization of Prudential Securities
totaling $9,854,629.
-6-
Use of Estimates--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires the Plan Administrator to make estimates and assumptions
that affect the reported amounts of net assets available for benefits at
the date of the financial statements and the reported changes to the
Plan's net assets available for benefits during the reporting period.
Actual results may differ from those estimates and assumptions.
The Plan invests in mutual funds, corporate stocks and the GIA. Investment
securities, in general, are exposed to various risks, such as interest
rate, credit, and overall market volatility. Due to the level of risk
associated with certain investment securities, it is reasonably possible
that changes in the values of investment securities will occur in the near
term and that such changes could materially affect the amounts reported in
the Statements of Net Assets Available for Benefits.
Reclassification--Certain prior year balances have been reclassed to
conform with current year presentation.
3. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
assets:
December 31,
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2002 2001
Prudential Guaranteed Interest Account $264,257,779 $ 223,267,587
Prudential Jennison Growth Fund 93,551,590 140,971,839
Prudential Stock Index Fund 81,570,235 109,667,360
Prudential MFS Total Return Fund 79,151,161 85,846,338
PIMCO Total Return Fund 49,964,915 39,101,506
Alliance Growth & Income Fund 36,370,831 47,328,416
Prudential International Value Fund 33,869,318 42,140,272
The Plan's investments (including gains and losses on investments bought
and sold, as well as held during the year) (depreciated) appreciated in
value as follows:
Year Ended December 31,
-------------------------------------------------------------
2002 2001 2000
Investments, at fair value:
Mutual funds $ (110,359,628) $ (75,244,965) $ (57,192,574)
Common stock (9,084,927) 10,606,605 (29,779,642)
-------------- ------------- -------------
Total depreciation $ (119,444,555) $ (64,638,360) $ (86,972,216)
============== ============= =============
-7-
4. TAX STATUS
The Plan has received a determination letter dated January 15, 1995, in
which the Internal Revenue Service ("IRS") stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code ("IRC"). The Plan has been amended since receiving
the determination letter. On February 28, 2002, the Plan Sponsor submitted
the Plan for a new determination letter from the IRS. The Plan
Administrator believes that the Plan is currently designed and being
operated in compliance with the applicable requirements of the IRC,
including the processes identified for remediation. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Plan Sponsor has
the right under the Plan to discontinue its contributions at any time and
to terminate the Plan subject to the provisions of ERISA and subject to
the terms of the settlement agreement whereby the Company must make a
supplemental matching contribution in years 2003 through 2006 if the total
dollar amount of the matching contribution for all participants for each
and any of those years is less than the total dollar amount of the 2002
matching contribution. In the event the Plan terminates, participants
would become fully vested in the Plan Sponsor contributions.
6. PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Prudential,
the custodian of the Plan. The transactions related to such investments
qualify as party-in-interest transactions. The Plan has also permitted
investment in the common stock of the Plan Sponsor and therefore these
transactions qualify as party-in-interest transactions. The Plan does not
consider Plan Sponsor contributions or benefits paid by the Plan to be
party-in-interest transactions.
7. CONTINGENCIES
In late 1999, the Plan Sponsor's Board of Directors hired a new executive
management team to address and resolve various business, operational and
financial challenges confronting the Plan Sponsor. New management began
the process of reviewing the administration of the Plan for purposes of
determining compliance with provisions of the Plan and regulatory
requirements. The Plan Administrator has identified certain processes not
in compliance with the provisions of the Plan or regulatory requirements,
the more significant of which are as follows:
a) During 2000, the Plan Sponsor failed to withhold and contribute
participant's salary deferral contributions associated with
supplemental salary payments in the amount of $82,363. In
addition, the Plan Sponsor matching contributions in the amount
of $25,399 associated with such participant salary deferrals
also were not contributed to participants' accounts. The Plan
Sponsor has completed an evaluation of the amount of investment
income that would have been earned by the participants on such
matching and salary deferral contributions during 2000 and the
prior periods in question. The Plan Sponsor estimates the
maximum foregone investment income on such contributions to be
$0, $8,137 and $106,744 for 2002, 2001 and 2000, respectively.
The Plan Sponsor expects to make a contribution to the
respective participant accounts following receipt of a
compliance statement related to the Voluntary Correction of
Operational Failures ("VCO") filing with the IRS, as described
below.
-8-
b) The Plan was not being operated in accordance with the Plan
document relating to the disbursement of minimum account
balances. The Plan calls for lump-sum disbursements of a
participant's account following a termination or retirement if
that participant's account is not more than $5,000. The
estimate of the minimum account balances subject to
disbursement in accordance with the Plan document for Plan
years ended December 31, 2002, 2001 and 2000 is $6,855,000,
$4,205,000 and $3,745,000, respectively. This defect was
included within the VCO filing with the IRS and its correction
is subject to the receipt of a compliance statement from the
IRS for the VCO filing as described below.
In April 2001, the Plan Administrator filed a VCO with the IRS, requesting
a compliance statement and approval of the correction method for
operational failures identified in the Plan audit. The Plan Administrator
is in discussions with the IRS regarding the issues identified in the VCO;
however, the Plan Administrator believes that the proposed correction
methods are acceptable under current IRS guidelines.
The Plan Administrator believes that the processes identified for
remediation would not cause the Plan to be disqualified by the IRS.
Penalties, taxes and remedial payments, if any, due to non-compliance will
be paid by the Plan Sponsor.
* * * * * *
-9-
THE RITE AID 401(k) PLAN
FORM 5500, SCHEDULE H, Line 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002
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Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 7,521,647
*Prudential Guaranteed Interest Account 264,257,779
*Prudential Jennison Growth Fund 93,551,590
*Prudential Stock Index Fund 81,570,235
*Prudential MFS Total Return Fund 79,151,161
*Prudential International Value Fund 33,869,318
*Prudential MFS Mid-Cap Growth Fund 3,520,836
Alliance Growth & Income Fund 36,370,831
Fidelity Magellan Fund 34,611,682
Franklin Templeton Balance Sheet Fund 22,966,117
Pimco Total Return Fund 49,964,915
Sempra Energy Sempra Energy Stock 13,561,186
**Participant notes Loan Fund 23,000,555
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TOTAL $ 743,917,852
=============
*Party-in-interest
**The loans range in interest rates from 5.75% to 10.50% and expire through
2022.
-10-
THE RITE AID 401(k) PLAN
FORM 5500, SCHEDULE H, Line 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
--------------------------------------------------------------------------------
Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 16,777,660
*Prudential Jennison Growth Fund 140,971,839
*Prudential Guaranteed Interest Account 223,267,587
*Prudential Stock Index Fund 109,667,360
*Prudential MFS Total Return Fund 85,846,338
*Prudential International Value Fund 42,140,272
*Prudential MFS Mid Cap Growth Fund 1,891,066
Alliance Growth & Income Fund 47,328,416
Fidelity Magellan Fund 40,259,406
Franklin Balance Sheet Fund 12,065,383
Pimco Total Return Fund 39,101,506
Sempra Energy Sempra Energy Stock 14,290,408
**Participant notes Loan Fund 28,811,009
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TOTAL $ 802,418,250
=============
*Party-in-interest
**The loans range in interest rates from 7.00% to 12.13% and expire through
2018.
-11-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
THE RITE AID 401(k) PLAN
By: /s/ Theresa G. Nichols
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Theresa G. Nichols, not in her individual
capacity, but solely as an authorized
signatory for the Employee Benefits
Administration Committee
Date: June 27, 2003
EXHIBIT INDEX
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Exhibit
Number Description
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23 Consent of Deloitte & Touche LLP