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, 2001
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:
Rite Aid Employee Investment Opportunity 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
RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 2001:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-8
SUPPLEMENTAL SCHEDULES AS OF DECEMBER 31, 2001:
Schedule of Assets Held for Investment Purposes 9
SUPPLEMENTAL SCHEDULES AS OF DECEMBER 31, 2000:
Schedule of Assets Held for Investment Purposes 10
SUPPLEMENTAL SCHEDULES FOR THE YEAR ENDED DECEMBER 31, 1999:
Schedule of Prohibited Transactions 11
INDEPENDENT AUDITORS' REPORT
To the Trustee and Participants of
Rite Aid Corporation Employee Investment Opportunity Plan:
We have audited the accompanying statements of net assets available for
benefits of the Rite Aid Corporation Employee Investment Opportunity Plan
(the "Plan") as of December 31, 2001 and 2000, and the related statements
of changes in net assets available for benefits for each of the three years
in the period ended December 31, 2001. These financial statements are the
responsibility of the Plan's management. 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 management, 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, 2001 and 2000, and the changes in net assets available for benefits for
each of the three years in the period ended December 31, 2001 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's management. 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
June 13, 2002
RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
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2001 2000
------------- -------------
ASSETS:
Investments $ 802,418,250 $ 852,280,813
Contributions receivable:
Employer 2,452,208 2,177,326
Employee 1,852,744 1,933,540
------------- -------------
Total contributions receivable 4,304,952 4,110,866
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 806,723,202 $ 856,391,679
============= =============
See notes to financial statements.
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RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
----------------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------------------------------------
2001 2000 1999
ADDITIONS:
Employee contributions $ 47,831,955 $ 47,803,384 $ 51,195,031
Employer contributions 8,015,466 7,684,986 7,900,073
Rollover contributions (See Note 1) 2,358,766 1,412,941 489,344,316
Loan transfers (See Note 1) - - 14,229,654
Investment income 21,409,961 20,826,774 20,495,736
Net depreciation in fair value of investments (64,638,360) (86,972,216) (12,423,609)
------------- ------------- -------------
Total additions, net 14,977,788 (9,244,131) 570,741,201
DEDUCTIONS:
Benefit payments 61,068,340 96,479,635 90,379,877
Loan defaults 3,577,925 3,471,064 -
------------- ------------- -------------
Total deductions 64,646,265 99,950,699 90,379,877
------------- ------------- -------------
(DECREASE) INCREASE IN NET ASSETS (49,668,477) (109,194,830) 480,361,324
AVAILABLE FOR BENEFITS
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR 856,391,679 965,586,509 485,225,185
------------- ------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $ 806,723,202 $ 856,391,679 $ 965,586,509
============= ============= =============
See notes to financial statements.
-3-
RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
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1. DESCRIPTION OF THE PLAN
The following brief description of the Rite Aid Corporation 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") 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.
The Company is the Plan administrator and is responsible for the
preparation of the Plan's financial statements.
Effective December 31, 1998, the Rite Aid Corporation Profit Sharing
and 401(k) Retirement Savings Plan and Trust Agreement for Former
Employees of Thrifty PayLess, Inc. and Its Affiliates, the K&B Thrift
Plan and the Harco 401(k) Plan (the "Affiliate Plans") were merged
into the Plan. Accordingly, on February 26, 1999 participant accounts
totaling $489,344,316 in the Affiliate Plans were transferred to
Prudential pursuant to a custodian-to-custodian transfer. In
addition, loans totaling $14,229,654 were transferred from the
Affiliate Plans to the Plan.
On January 1, 2002, the Plan was amended and renamed the Rite Aid
401(k) Plan, see Note 8.
Participation - Substantially all non-union Company employees become
eligible to participate in the Plan after 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 Company matched 40% of each
participant's pretax payroll contribution, not to exceed 3% of the
participant's annual pretax compensation, up to $1,200. See Note 8
for a description of contributions effective January 1, 2002.
Investment Options - The Plan provides a participant the discretion
of investing the participant's account balance in up to 15 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. A participant may
only have three loans outstanding at any one time.
-4-
Vesting - Participants are immediately vested in all employee
contributions credited to the participant's accounts plus actual
earnings (losses) thereon. Vesting in the Company's contributions is
based on years of service, as defined in the Plan document. A
participant becomes fully vested in the Company'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
Forfeitures - When a participant withdraws from the Plan prior to
becoming fully vested, any forfeited portion of the participant's
account is (i) used to pay administrative expenses of the Plan, (ii)
used to reduce the Company'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.
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 calendar year for contributions received during that
calendar quarter. The GIA is deemed to be benefit responsive,
therefore, it is presented at contract value which approximates fair
value. The average yields were 5.06%, 6.31% and 5.61% for 2001, 2000
and 1999, respectively. As of December 31, 2001 and 2000, the
crediting interest rate was 4.50% and 6.10%, respectively.
Administrative Expenses - Under the terms of the Plan agreement,
costs relating to Plan administration may be paid by the Company as
Plan sponsor. For the years ended December 31, 2001, 2000 and 1999,
the Plan sponsor has paid substantially all administrative expenses.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires Plan management 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.
-5-
The Plan invests in mutual funds and corporate stocks. 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.
Derivative Instruments and Hedging Activities - On January 1, 2001,
the Plan adopted the Financial Accounting Standards Board Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS
No. 137 and SFAS No. 138. This standard establishes accounting and
reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize derivatives as either
assets or liabilities in the statement of financial position and to
measure those instruments at fair value. Adoption of SFAS No. 133, as
amended, did not have a material impact on the financial statements
of the Plan.
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,
--------------------------------------
2001 2000
Prudential Guaranteed Interest Account $223,267,587 $ 181,068,394
Prudential Jennison Growth Fund 140,971,839 188,126,941
Prudential Stock Index Fund, Class I 109,667,360 136,244,191
Prudential MFS Total Return Fund, Class A 85,846,338 85,972,066
Alliance Growth & Income Fund 47,328,416 -
Prudential International Value Fund 42,140,272 54,831,506
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,
-----------------------------------------------------------
2001 2000 1999
Investments, at fair value:
Mutual funds $ (75,244,965) $ (57,192,574) $ 116,981,648
Common stock 10,606,605 (29,779,642) (129,405,257)
------------- ------------- -------------
Total depreciation $ (64,638,360) $ (86,972,216) $ (12,423,609)
============= ============= =============
-6-
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 Company
submitted the Plan for a new determination letter from the IRS.
However, the Plan sponsor believes that the Plan is currently
designed and being operated in compliance with the applicable
requirements of the IRC, except as otherwise noted in Note 7.
Management believes that the processes identified for remediation
would not cause the Plan to be disqualified by the IRS. 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 Company has
the right under the Plan to discontinue its contributions at any time
and to terminate the Plan subject to the provisions of ERISA. In the
event the Plan terminates, participants would become fully vested in
their employer 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
also permitted investment in the common stock of the Company, see
Note 7. The Company is the Plan sponsor, as defined by the Plan and,
therefore, these transactions qualify as party-in-interest
transactions. The Plan does not consider employer contributions or
benefits paid by the Plan to be party-in-interest transactions.
7. CONTINGENCIES
As of January 1, 1999, the Plan had approximately 30% of its assets
invested in the common stock of the Company (Company Stock Fund) at a
share price of $49.75. On October 12, 1999, following the Company's
announcement that its previously issued financial statements should
not be relied upon, the Company suspended all purchases of Company
stock through the Company Stock Fund. Contributions received on or
after October 12, 1999, which would otherwise have been directed to
the Company Stock Fund, were invested in the Prudential MoneyMart
Assets Fund and will continue to be invested in the Prudential
MoneyMart Assets Fund until the participant elects otherwise.
In late 1999, the Company's Board of Directors hired a new executive
management team to address and resolve various business, operational
and financial challenges confronting the Company. 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. Management has identified certain processes
not in compliance with the provisions of the Plan or regulatory
requirements, as follows:
a) During 2000 and 1999, the Company failed to withhold and
contribute participant's salary deferral contributions associated
with supplemental salary payments in the amounts of $82,363 and
$600,308, respectively. In addition, the employer match
contributions for 2000 and 1999 in the amounts of $25,399 and
$181,157, respectively, associated with such participant salary
deferrals were also not contributed to participants' accounts.
The Company 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 the
periods in question. The Company estimates the maximum foregone
investment income on such contributions to be $114,881, $106,744
and $76,546 for 2001, 2000 and 1999, respectively. The Company
expects to make a contribution to the respective participant
accounts during 2002.
-7-
b) During 1999, the Company failed to remit in a timely manner
certain employee salary deferral contributions in the amount of
$5,300,687 to the Plan custodian, Prudential, in accordance with
the Department of Labor's rules regarding the timeliness of
depositing such employee contributions. The Company has completed
their evaluation of the amount of investment income that would
have been earned by the participants on those contributions
during the periods in question. During 2001, the Company made an
additional contribution to the Plan to be allocated to the
affected participants' accounts in the amount of $44,918, which
represents the investment income that would have been earned by
the participants had the contributions been deposited with the
trustee on a timely basis.
c) 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. As a result of
the analysis completed in January 2002 related to this defect,
the estimate of the minimum account balances subject to
disbursement in accordance with the Plan document for Plan years
ended December 31, 2001, 2000 and 1999 is $4,205,000, $3,745,000
and $3,204,000, respectively. This defect was included within the
Voluntary Correction of Operational Failures ("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 Company filed a VCO with the IRS, requesting a
compliance statement and approval of the correction method for
operational failures identified in the Plan. As of the date of this
report no correspondence has been received from the IRS relating to
this matter other than an acknowledgment. However, management
believes that the proposed correction methods are acceptable under
current IRS guidelines.
Management 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 Company.
8. SUBSEQUENT EVENT
Effective January 1, 2002, the Plan was amended to adopt a "safe
harbor" matching formula under IRC Section 401(k)(12)(B). Under this
safe harbor formula the Company will match 100% of a participant's
pretax payroll contributions, up to a maximum of 3% of such
participant's pretax annual compensation. Thereafter, the Company
will match 50% of the participant's additional pretax payroll
contributions, up to a maximum of 5% of such participant's pretax
annual compensation. Participants are now allowed to contribute after
three months of service with no service hour requirement. In
addition, the name of the Plan has been amended effective January 1,
2002 and is now known as The Rite Aid 401(k) Plan.
******
-8-
RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2001
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Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 16,777,660
*Prudential Guaranteed Interest Account 223,267,587
*Prudential Jennison Growth Fund 140,971,839
*Prudential Stock Index Fund, Class I 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 Templeton 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.
-9-
RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2000
--------------------------------------------------------------------------------------------------------
Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 8,457,751
*Prudential Jennison Growth Fund 188,126,941
*Prudential Guaranteed Interest Account 181,068,394
*Prudential Stock Index Fund, Class I 136,244,191
*Prudential MFS Total Return Fund 85,972,066
*Prudential International Value Fund 54,831,506
*Prudential Government Income Fund 33,183,781
*Prudential MoneyMart Assets Fund 20,694,258
*Prudential Small Company Value Fund 4,891,421
*Prudential Active Balanced Fund 566
*Prudential Stock Index Fund, Class Z 7
Fidelity Magellan Fund 41,173,538
Fidelity Growth Opportunity Fund 35,013,054
Putnam Growth & Income Fund 17,867,336
Sempra Energy Sempra Energy Stock 14,324,741
**Participant notes Loan Fund 30,431,262
-------------
TOTAL $ 852,280,813
=============
* Party-in-interest
** The loans range in interest rates from 9.25% to 10.50% and expire through 2020.
-10-
RITE AID CORPORATION EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
SCHEDULE OF PROHIBITED TRANSACTIONS
YEAR ENDED DECEMBER 31, 1999
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Date Period(s)
Remitted to Covered Employee
Trustee by Deferral Check
(Custodian) Payroll Amount Date
3/25/1999 1/16/1999 $ 22,172 1/21/1999
3/25/1999 1/23/1999 15,698 1/28/1999
4/13/1999 1/30/1999 7,067 2/4/1999
5/7/1999 2/6/1999 4,258 2/11/1999
5/7/1999 2/13/1999 3,430 2/18/1999
3/22/1999 2/20/1999 31,250 2/25/1999
5/7/1999 2/20/1999 15,302 2/25/1999
5/7/1999 2/27/1999 1,839 3/4/1999
5/26/1999 4/3/1999 92 4/8/1999
5/26/1999 4/10/1999 251 4/15/1999
5/26/1999 4/17/1999 1,205,747 4/22/1999
6/7/1999 4/17/1999 1,133 4/22/1999
5/26/1999 4/24/1999 175 4/29/1999
6/7/1999 4/24/1999 909,997 4/29/1999
7/1/1999 5/22/1999 321 5/27/1999
7/27/1999 6/19/1999 5,449 6/24/1999
10/22/1999 9/25/1999 1,765 9/30/1999
12/30/1999 11/20/1999 2,805,479 11/25/1999
4/20/2000 11/27/1999 1,059 12/2/1999
4/20/2000 12/4/1999 1,743 12/9/1999
4/20/2000 12/11/1999 3,154 12/16/1999
4/20/2000 12/18/1999 44,805 12/23/1999
1/24/2000 12/25/1999 144,743 12/30/1999
4/20/2000 12/25/1999 73,758 12/30/1999
4/20/2000 12/25/1999 73,758 12/30/1999
-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.
RITE AID EMPLOYEE INVESTMENT
OPPORTUNITY PLAN
/s/ Richard J. Varmecky
---------------------------------
Name: Richard J. Varmecky
Title: Trustee
Date: June 28, 2002