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:
Perry Distributors, Inc. 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
PERRY DISTRIBUTORS, INC. 401(k) PLAN
TABLE OF CONTENTS
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Page
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 4-8
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2002:
Form 5500, Schedule H, Line 4i - Schedule of Assets
(Held at End of Year) 9
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2001:
Form 5500, Schedule H, Line 4i - Schedule of Assets
(Held at End of Year) 10
INDEPENDENT AUDITORS' REPORT
To the Plan Administrator and Participants of
Perry Distributors, Inc. 401(k) Plan:
We have audited the accompanying statements of net assets available for
benefits of the Perry Distributors, Inc. 401(k) Plan (the "Plan") as of
December 31, 2002 and 2001, and the related statement 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
PERRY DISTRIBUTORS, INC. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
ASSETS:
Investments $ 1,800,893 $ 1,786,412
Contributions receivable:
Employer 481 481
Employee 2,796 7,215
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Total contributions receivable 3,277 7,696
------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,804,170 $ 1,794,108
============ ===========
See notes to financial statements.
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PERRY DISTRIBUTORS, INC. 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,
------------------------------------------------------------
2002 2001 2000
ADDITIONS:
Employee contributions $ 162,786 $ 201,057 $ 200,022
Employer contributions - 32,651 64,652
Rollover contributions - - 2,001
Investment income 66,066 68,667 63,411
--------- --------- ---------
Total additions 228,852 302,375 330,086
DEDUCTIONS:
Net depreciation in fair value of investments 192,701 112,387 90,903
Benefit payments 25,765 51,282 47,278
Loan defaults 324 5,637 4,249
--------- --------- ---------
Total deductions 218,790 169,306 142,430
INCREASE IN NET ASSETS AVAILABLE FOR
BENEFITS 10,062 133,069 187,656
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR 1,794,108 1,661,039 1,473,383
--------- --------- ---------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $1,804,170 $1,794,108 $1,661,039
========== ========== ==========
See notes to financial statements.
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PERRY DISTRIBUTORS, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
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1. PLAN DESCRIPTION
The following brief description of the Perry Distributors, Inc. 401(k)
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.
Effective January 2, 2003, employees of Perry Distributors, Inc. have
become employees of Rite Aid Services, L.L.C., a wholly owned subsidiary
of the Plan Sponsor. The Plan has continued to be recognized by the Plan
Sponsor. Accordingly, all participants are provided the same benefits
that were previously provided by the Plan before the creation of Rite
Aid Services, L.L.C.
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.
In March 1995, Perry Drug Stores, Inc. was acquired by the Plan Sponsor,
who elected to continue this Plan.
Effective June 16, 2001, the Plan Sponsor ceased making contributions to
the Plan pursuant to a collective bargaining agreement dated May 27,
2001. Employees continue to contribute as described below, however,
there is no Plan Sponsor match.
Participation--Each employee who is a member of the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America, Local 614 becomes eligible to participate in the Plan after
attaining age 21 and completing one year of service (at least 1,000
hours).
Contributions--Each year, a participant may elect to contribute up to
12% of the participant's pretax annual compensation, as defined in the
Plan. A participant may also contribute, or rollover, amounts
representing distributions from another qualified defined benefit or
defined contribution plan. With respect to elective contributions paid
or accrued prior to June 15, 2001, the Plan Sponsor matches 100% of each
participant's pretax annual contribution, not to exceed the lesser of
$700 or 2% of the participant's pretax annual compensation. The Plan
Sponsor match is contributed per pay period throughout the Plan year. No
matching contribution will be made with respect to elective deferrals
paid or accrued after June 15, 2001, except as described in the next
paragraph.
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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.
Investment Options--The Plan provides participants with the option of
investing in ten funds. The funds vary in degree of risk and investment
objective.
Payment of Benefits--Upon termination of service due to death,
disability, or retirement, a participant may elect to receive a lump sum
amount equal to the value of the participant's vested interest in the
participant's account, or installment payments as determined by the Plan
Administrator.
Loans--Loans under the Plan are not permitted. However, the Plan
Administrator has identified loans made under the Plan resulting in an
operational failure. To correct this operational failure, the Plan
Sponsor has proposed to retroactively amend the Plan to permit up to
three loans be outstanding at one time. This operational failure and the
proposed correction method have been identified in the Voluntary
Correction Program ("VCP") described in Note 7.
Vesting--A participant is vested immediately in the participant's
voluntary contributions, plus actual earnings (losses) thereon. 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 contributions upon the participant's death, disability or
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 becomes fully vested upon the
participant's attainment of five years of service.
Forfeitures--When a participant withdraws from the Plan prior to
becoming fully vested, the non-vested portion of the participant's
account is forfeited and credited to a suspense account. The suspense
account will be reallocated to participants in the same manner as
matching contributions.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting--The accompanying financial statements are 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 the trade date. Interest income is recorded on the accrual
basis. Dividend income is recognized on the ex-dividend date.
The Plan had 347 and 363 shares of Company common stock at December 31,
2002 and 2001, respectively.
-5-
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.
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 assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses 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.
3. INVESTMENTS
The following presents investments that represent 5% or more of the
Plan's assets:
December 31,
----------------------------
2002 2001
Prudential Guaranteed Interest Account $ 1,008,531 $ 849,638
Prudential Jennison Growth Fund 181,419 272,387
Prudential Active Balanced Fund 160,619 166,494
Prudential Stock Index Fund 160,010 195,501
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 $(191,751) $(113,371) $ (87,000)
Common Stock (950) 984 (3,903)
---------- ---------- ----------
Total depreciation $(192,701) $(112,387) $ (90,903)
========== ========== ==========
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4. TAX STATUS
The Plan obtained its latest determination letter dated November 20,
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. In the
event the Plan terminates, participants would become fully vested in
their 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
participants' salary deferral contributions associated with
supplemental salary payments in the amount of $24. In addition,
the Plan Sponsor match contributions of $13 associated with
such participant salary deferrals were also not contributed to
participant accounts. The Plan Sponsor has compiled 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, $2 and $26
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 Program ("VCP") filing with the IRS, as
described below.
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
-7-
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 $13,071, $11,635 and $10,220, respectively. This defect was
included within the VCP filing with the IRS and its correction
is subject to the receipt of a compliance statement from the
IRS for the VCP filing as described below.
In July 2001, the Plan Administrator filed a VCP with the IRS,
requesting a compliance statement and approval of the correction method
for operational failures identified in the Plan. The Plan Administrator
is in discussions with the IRS regarding the issues identified in the
VCP; 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.
******
-8-
PERRY DISTRIBUTORS, INC. 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 $ 851
*Prudential Guaranteed Interest Account 1,008,531
*Prudential Jennison Growth Fund 181,419
*Prudential Stock Index Fund 160,010
*Prudential Active Balanced Fund 160,619
*Prudential International Stock Fund 53,617
*Prudential MoneyMart Assets Fund 44,128
*Prudential Government Income Fund 45,842
Fidelity Magellan Fund 28,330
Putnam Growth and Income Fund 11,707
**Participant Notes Loan Fund 105,839
-----------
TOTAL $ 1,800,893
===========
*Party-in-interest
**The loans range in interest rates from 5.75% to 10.50% and expire through
2021.
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PERRY DISTRIBUTORS, INC. 401(k) PLAN
FORM 5500, SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
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Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 1,835
*Prudential Guaranteed Interest Account 849,638
*Prudential Jennison Growth Fund 272,387
*Prudential Stock Index Fund 195,501
*Prudential Active Balanced Fund 166,494
*Prudential International Stock Fund 65,438
*Prudential MoneyMart Assets Fund 42,363
*Prudential Government Income Fund 20,236
Fidelity Magellan Fund 42,091
Putnam Growth and Income Fund 12,439
**Participant Notes Loan Fund 117,990
-----------
TOTAL $ 1,786,412
===========
*Party-in-interest.
**The loans range in interest rates from 5.75% to 10.50% and expire through
2021.
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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.
PERRY DISTRIBUTORS, INC. 401(k) PLAN
By: /s/ Theresa G. Nichols
-------------------------------------
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
Exhibit
Number Description
23 Consent of Deloitte & Touche LLP