2008				2007
ASSETS:
Participant-directed investments — at fair value		$	3,874,878			$	5,085,937
Contributions receivable:
Employer							247
Employee							5,234
Total contributions receivable							5,481
NET ASSETS AVAILABLE FOR BENEFITS AT			3,874,878				5,091,418
FAIR VALUE
Adjustments from fair value to contract value for fully
benefit-responsive investment contracts			10,908				1,315
NET ASSETS AVAILABLE FOR BENEFITS		$	3,885,786			$	5,092,733

 

 

See notes to financial statements.

    

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RITE AID SERVICES, L.L.C. 401(k) PLAN

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEAR ENDED DECEMBER 31, 2008

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ADDITIONS:
Employee contributions		$	227,624
Employer contributions
Investment income			121,451
Total additions			349,075
DEDUCTIONS:
Net depreciation in fair value of investments			1,303,026
Benefit payments			220,820
Administrative expenses			32,176
Total deductions			1,556,022
DECREASE IN NET ASSETS AVAILABLE FOR BENEFITS			(1,206,947	)
NET ASSETS AVAILABLE FOR BENEFITS — Beginning of year			5,092,733
NET ASSETS AVAILABLE FOR BENEFITS — End of year		$	3,885,786

 

 

See notes to financial statements.

 

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RITE AID SERVICES, L.L.C. 401(K) PLAN

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007, AND FOR THE YEAR ENDED DECEMBER 31, 2008

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1.	PLAN DESCRIPTION

 

The following brief description of the Rite Aid Services, L.L.C. 401(k) Plan (the “Plan”) is provided for general informational purposes only. Participants should refer to the Plan document 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 participant accounts, if any.

 

T. Rowe Price Trust Company serves as Plan trustee with respect to all assets other than Company stock. GreatBanc Trust Company serves as Plan trustee with respect to Company stock. The Employee Benefits Administration Committee is the plan administrator (“Plan Administrator”) and is responsible for the preparation of the Plan’s financial statements.

 

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 (a twelve-month period when at least 1,000 hours are credited).

 

Contributions — Effective January 1, 2008, a participant may elect to contribute up to 70% of the participant’s pretax annual compensation as defined in the Plan. Participants age 50 and over may make additional pretax contributions as defined in the Plan. A participant may also contribute, or roll over, amounts representing distributions from another qualified defined benefit or defined contribution 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 above.

 

Investment Options — The Plan provides participants with the option of investing the participant’s account balances into various investment options offered by the Plan. The Plan currently offers 18 mutual funds, 5 custom funds, 1 common/collective trust, a stable value fund and Rite Aid Corporation Common Stock.

 

The Plan’s custom funds are custom investment option created specifically for the Plan by Northern Trust Global Advisors, Inc. The custom fund is an unregistered custom account maintained by the trustee. The performance of the custom fund is based on the performance of the underlying mutual funds which are registered in the market.

 

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 — A participant may elect to borrow against the participant’s vested balance at a reasonable rate of interest as defined in the Plan document. A participant may borrow up to 50% of the participant’s vested balance, with a maximum loan of $50,000. A participant may only have one loan outstanding at any one time, with the exception that participants may have up to two outstanding loans which were grandfathered at the time the Plan was amended to no longer allow more than one loan.

 

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Vesting — A participant is vested immediately in the participant’s voluntary contributions, plus actual earnings (losses) thereon. Vesting in the Plan Sponsor’s contributions made prior to June 16, 2001, 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. 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 may be reallocated to participants in the same manner as matching contributions.

Forfeited Accounts — At December 31, 2008 and 2007, forfeited nonvested accounts totaled $8,129 and $37,892, respectively.  These forfeited amounts may, among other uses, be used to reduce future employer contributions and pay certain administrative expenses. During the year ended December 31, 2008, administrative expenses were paid by forfeited nonvested accounts.

2.	SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The accompanying financial statements are prepared on the accrual basis of accounting.

Adoption of new Accounting Guidance — The financial statements reflect the adoption of Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP). As required by the FSP, the statements of net assets available for benefits presents investment contracts at fair value as well as an additional line item showing an adjustment of fully benefit responsive contracts from fair value to contract value. The statement of changes in net assets available for benefits is presented on a contract value basis and was not affected by the adoption of the FSP.

Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value. Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year end. Custom funds are stated at fair value which is based on the net asset value of participation units held by the Plan at year-end and is calculated based on the shares held in underlying mutual fund investments and the net asset value of those investments. Common stock is valued at quoted market prices.

Common collective trust funds are stated at fair value as determined by the issuer of the common collective trust funds based on the fair market value of the underlying investments.

The stable value fund (SVF) includes two fully benefit-responsive synthetic guaranteed investment contracts (GIC) whose underlying investments are stated at fair value and then adjusted by the issuer to contract value. Fair value of the underlying investments is determined by the issuer of the synthetic GIC based on market prices and a fair value estimate of the wrapper contract. Fair market value of the wrapper is estimated by converting the basis points assigned to the wrap fees into dollars.

Participant loans are valued at the outstanding loan balances which approximates fair value.

 

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The common collective trust funds and the stable value fund may invest in fixed interest insurance investment contracts, money market funds, corporate and government bonds, mortgage-backed securities, bond funds, and other fixed income securities. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract value represents contributions made to the fund, plus earnings, less participant withdrawals.

Purchases and sales of securities are recorded on a trade-date basis. 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. Dividends are recorded on the ex-dividend date.

Management fees and operating expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.

The Plan had 1,883 and 1,073 shares of Company common stock at December 31, 2008 and 2007, respectively.

Valuation of Investment(s) Contracts — The Plan offers the SVF as an investment option. On October 1, 2006, the Plan began to offer the T. Rowe Price SVF with the Prudential SVF blended together as a single investment split fifty percent into each of these underlying investments. These are trust products and are comprised of group annuity insurance products issued by The Prudential Insurance Company of America (“Prudential”) and by T. Rowe Price Retirement Plan Services (“T. Rowe Price”) and a portfolio of assets owned by the plan or designee. Interest on the SVF is credited daily. T. Rowe Price calculated a blended rate which was credited and compounded on a daily basis. The blended rate is based upon the Prudential and T. Rowe Price rates and the 50%-50% asset split. The SVF is deemed to be fully benefit responsive; therefore, it is presented at contract value, which approximates fair value.

Administrative Expenses — Plan fees and expenses related to account maintenance, transaction and investment fund management are allocated to participant accounts. Under the terms of the Plan document, costs relating to Plan administration may be paid by the Plan Sponsor or paid from Plan forfeitures. For the year ended December 31, 2008, 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 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 SVF. 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.

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3.	FAIR VALUE MEASUREMENTS

In accordance with Statement of Financial Accounting Standards No. 157, Fair Value Measurements, the plan classifies its investments into level 1, which refers to securities valued using quoted prices from active markets for identical assets; level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available; and level 3, which refers to securities valued based on significant unobservable inputs. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth by level within the fair value hierarchy a summary of the plan’s investments measured at fair value on a recurring basis at December 31, 2008.

		Quoted Prices in				Significant
		Active Markets				Other				Significant
		for Identical				Observable				Unobservable
		Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)				Total
Rite Aid Common Stock		$	584											$	584
Mutual Funds			1,833,577												1,833,577
Custom Funds			351,562												351,562
Common and Collective Trusts							4,042								4,042
Stable Value Fund							1,434,483								1,434,483
Participant Loans											250,630				250,630
Total		$	2,185,723			$	1,438,525				250,630			$	3,874,878

 

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Common Stock

 

The Plan measures its Rite Aid common stock using the stock’s quoted price, which is available in an active market.  Therefore, this investment is classified within Level 1 of the valuation hierarchy.

Mutual funds

 

The Plan measures its mutual funds that are exchange-traded using the fund’s quoted price, which is in an active market.  Therefore, these investments are classified within Level 1 of the valuation hierarchy.

Custom  funds

 

Custom funds are made up of two mutual funds.  The plan measures its mutual funds that are exchange-traded using the fund’s quoted price.  They are traded daily based on observable fair value at a net asset value (NAV) that is recalculated daily.  Therefore, these investments are classified within Level 1 of the valuation hierarchy.

Common and Collective Trusts

 

The T. Rowe Price Bond Index Trust is priced at trust NAV per unit, adjusted for trustee fees accrued daily (as applicable).  Investments held by the T. Rowe Price Bond Index Trust are stated at fair value in accordance with FAS 157.  Therefore, the Plan classifies common and collective trusts as Level 2 securities in the fair value hierarchy.

 

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Stable value fund

 

Stable value funds have underlying investments that consist of cash equivalents, collective trust funds, guaranteed investment contracts, and alternative investment contracts.  Cash equivalents are short term investment funds that have a maturity of 90 days or less and are valued at cost.  The collective trust funds value is derived by their respective NAV.  The collective trust funds consist of bonds and asset-backed securities whose value is derived from observable inputs based on the pricing of similar instruments that are publicly traded.  Guaranteed investment contracts are valued based on their underlying securities, which consist of bonds whose value is derived from observable inputs including London Interbank Offered Rate (LIBOR) forward interest rate curves.  The bonds are valued based on the pricing of similar bonds that are publicly traded.  In determining fair value, factors such as the benefit-responsiveness of the investment contracts and the ability of the parties to the investment contracts to perform in accordance with the terms of the contracts; such inputs were not significant to the valuation.  Alternative investment contracts are valued based on their underlying securities, which consists of common funds consisting of bonds and asset-backed securities whose value is derived from observable inputs based on the pricing of similar instruments that are publicly traded.  Therefore, the Plan classifies stable value funds as Level 2 securities in the fair value hierarchy.

Participant loans

 

Participant loans are stated at cost, which approximates fair value.

The following table is a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

For the year ended December 31, 2008		Participant Notes Receivable				Total Fair Value
Beginning Balance		$	222,520			$	222,520
Total gains or losses (realized/unrealized)
Purchases, sales, issuances and settlements, net			28,110				28,110
Transfers in and/or out of Level 3
Ending Balance		$	250,630			$	250,630

4.	SYNTHETIC GUARANTEED INVESTMENT CONTRACT

The plan provides a self managed stable value investment option to participants that includes a synthetic guaranteed investment contract which simulates the performance of a guaranteed investment contract through an issuer’s guarantee of a specific interest rate (the wrapper contract) and a portfolio of financial instruments that are owned by the plan. The synthetic GIC contract includes underlying assets which are held in trust owned by the plan and utilizes a benefit-responsive wrapper contract. A portion of the master trust’s Stable Value Fund is issued by The Prudential Insurance Company of America and a portion is managed by T. Rowe Price Associates, Inc. (TRPA). The TRPA portion of the Fund consists of synthetic investment contracts which are selected by TRPA and issued by banks and other financial institutions. TRPA also manages the fixed income instruments underlying the investment contracts in its portion of the Fund. The contract provides that participants execute plan transactions at contract value. Contract value represents contributions made to the fund, plus earnings, less participant withdrawals. The interest rates are reset quarterly based on market rates of other similar investments, the current yield of the underlying investments and the spread between the market value and contract value. Certain events such as plan termination or a plan merger initiated by the plan sponsor, may limit the ability of the plan to transact at contract value or may allow for the termination of the wrapper contract at less than contract value. The plan sponsor does not believe that any events that may limit the ability of the plan to transact at contract value are probable.

 

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		2008				2007
Average yields:
Based on annualized earnings (1)			4.80	%			5.05	%
Based on interest rate credited to participants (2)			4.25				4.47

 

(1)

Computed by dividing the annualized one-day actual earnings of the contract on the last day of the plan year by the fair value of the investments on the same date.

(2)

Computed by dividing the annualized one-day earnings credited to participants on the last day of the plan year by the fair value of the investments on the same date.

5.	INVESTMENTS

The following presents investments that represent 5% or more of the Plan’s assets:

		2008				2007
Stable Value Fund		$	1,434,483			$	1,216,849
Dodge & Cox Balanced Fund			315,204				492,983
T. Rowe Price Retirement 2025			294,488				477,908
T. Rowe Price Retirement 2020			293,083				475,558
Participant Loan Fund			250,630				222,520
T. Rowe Price Retirement 2015			227,488				325,665
Vanguard Institutional Index Fund			178,064				281,508
T. Rowe Price Retirement 2030			160,612				311,230
Northern Trust Global Advisors Large-Cap Growth Fund			154,089				268,237
T. Rowe Price Retirement 2010			139,575				278,544

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The Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated/(depreciated) in value for the year ended December 31, 2008, as follows:

Investments:
Rite Aid Corporate Stock		$	(3,325	)
Mutual Funds			(1,099,859	)
Custom Funds			(257,459	)
Common and Collective Trusts			164
Stable Value Funds			57,453
Net appreciation (depreciation) in fair value of investments		$	(1,303,026	)

6.	TAX STATUS

The Plan obtained its latest determination letter dated July 8, 2003, 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. 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.

7.	PLAN TERMINATION

Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan 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.

8.	PARTY-IN-INTEREST TRANSACTIONS

Certain Plan investments are shares of mutual funds managed by T. Rowe Price Trust Company, the trustee and 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 Administrator does not consider Plan Sponsor contributions or benefits paid by the Plan to be party-in-interest transactions.

9.	CONTINGENCY

The Plan Administrator identified operational failures in the Plan, including a failure to make certain deferral contributions. The Plan Administrator submitted a VCP filing with the IRS on December 23, 2008 requesting a compliance statement and approval of the correction method for these operational failures identified in the Plan. The Plan Administrator 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. Penalties, taxes and remedial payments, if any, due to noncompliance will be paid by the Company.

 

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10.	RECONCILIATION OF FINANCIALS TO FORM 5500

The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of December 31, 2008.

Net assets available for benefits per the financial statements
at contract value		$	3,885,786
Adjustment from contract value to fair value for fully benefit-responsive			(10,908	)
investment contracts
Net assets available for benefits per Form 5500, Schedule H, Part I (line L)		$	3,874,878

 

For the year ended December 31, 2008, the following is a reconciliation of net investment loss per the financial statements to the Form 5500:

Total contributions		$	227,624
Total investment income			121,451
Net depreciation in fair value of investments			(1,303,026	)
Prior year adjustment from fair value to contract value for fully			1,315
benefit-responsive investment contracts
Current year adjustment from fair value to contract value for fully			(10,908	)
benefit-responsive investment contracts
Total loss per Form 5500, Schedule H, Part II (line 2d)		$	(963,544	)

 

******

 

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SUPPLEMENTAL SCHEDULE

 

 

 

 

 

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RITE AID SERVICES, L.L.C. 401(k) PLAN

FORM 5500 — SCHEDULE H, LINE 4i — SCHEDULE OF ASSETS (HELD AT END OF YEAR)

AS OF DECEMBER 31, 2008 

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							At
Identity of Issuer, Borrower,			Number				Fair Market
Lessor or Similar Party and Description			of Shares				Value
Common and collective trust:
*T. Rowe Price	Bond Index Trust			155			$	4,042
Total common and collective trust								4,042
Mutual Funds:
*T. Rowe Price	Retirement 2025			37,089				294,488
*T. Rowe Price	Retirement 2020			26,380				293,083
*T. Rowe Price	Retirement 2015			27,408				227,488
*T. Rowe Price	Retirement 2030			14,392				160,612
*T. Rowe Price	Retirement 2010			12,451				139,575
*T. Rowe Price	International Equity Index Fund			5,541				48,430
*T. Rowe Price	Retirement 2035			5,212				40,604
*T. Rowe Price	Retirement 2040			2,358				26,127
*T. Rowe Price	Extended Equity Market Index Fund			1,523				14,419
*T. Rowe Price	Retirement 2005			637				5,500
*T. Rowe Price	Retirement Income Fund			227				2,342
*T. Rowe Price	Retirement 2045			159				1,176
Dodge & Cox	Balanced Fund			6,149				315,204
Vanguard	Instl Index Fund			2,157				178,064
Pimco	Total Return Inst Fund			5,634				57,133
Vanguard	Small-Cap Index Fund			1,438				29,332
Total mutual funds								1,833,577
Custom Funds:
Northern Trust Global Advisors	Large-Cap Growth Fund			19,704				154,089
Northern Trust Global Advisors	International Equity Fund			5,779				68,599
Northern Trust Global Advisors	Mid-Cap Fund			6,931				65,218
Northern Trust Global Advisors	Small-Cap Fund			3,389				33,961
Northern Trust Global Advisors	Large-Cap Value Fund			3,270				29,695
Total custom funds								351,562
Stable Value Fund Synthetic
Guaranteed Investment Contract:
Prudential and *T. Rowe Price	Stable Value Fund			117,321				1,434,483
Total Stable Value Fund Synthetic Guaranteed Investment Contract								1,434,483
Company Stock Fund:
*Rite Aid Corporation	Company Stock Fund			1,883				584
*Participant notes	Loan Fund**							250,630
Total Assets Held at End							$	3,874,878

 

*	Party-in-interest

**	The loans range in interest rates from 5.0% to 9.25% and expire through 2021.

 

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SIGNATURES

The Plan.  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 SERVICES, L.L.C. 401(k) PLAN
	By:	/s/ Chuck Carlsen
		Chuck Carlsen, not in his individual capacity, but solely as an authorized signatory for the Employee Benefits Administration Committee

 

Date:  June 29, 2009

 

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EXHIBIT INDEX

Exhibit Number	Description
23.1	Consent of Independent Registered Public Accounting Firm

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