UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2006
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 Services, L.L.C. 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
RITE AID SERVICES, L.L.C. 401(k) PLAN
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of December 31, 2006
and 2005 2
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 2006 3
Notes to Financial Statements as of December 31, 2006 and 2005 and for
the Year Ended December 31, 2006 4-9
SUPPLEMENTAL SCHEDULE--
Form 5500, Schedule H, Line 4i--Schedule of Assets (Held at End of Year)
as of December 31, 2006 11
NOTE: All other schedules required by Section 2520.103-10 of the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 have been omitted
because they are not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Plan Administrator and Participants of
Rite Aid Services, L.L.C. 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of the Rite Aid Services, L.L.C. 401(k) Plan (the "Plan") as of December 31,
2006 and 2005, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2006. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Plan is not required
to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Plan's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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,
2006 and 2005, and the changes in net assets available for benefits for the year
ended December 31, 2006, 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 schedule listed in the
Table of Contents is presented for the purpose of additional analysis and is not
a required part of the basic financial statements, but is 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. This schedule is the responsibility of the Plan Administrator. Such
supplemental schedule has been subjected to the auditing procedures applied in
our audit of the basic 2006 financial statements and, in our opinion, is fairly
stated in all material respects when considered in relation to the basic 2006
financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
June 29, 2007
RITE AID SERVICES, L.L.C. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2006 AND 2005
---------------------------------------------------------------------------------------------------
2006 2005
ASSETS:
Participant-directed investments - at fair value $4,689,406 $2,659,334
---------- ----------
Contributions receivable:
Employer 236 224
Employee 4,628 8,235
---------- ----------
Total contributions receivable 4,864 8,459
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE 4,694,270 2,667,793
Adjustments from fair value to contract value for fully benefit-
responsive investment contracts 9,897 2,947
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $4,704,167 $2,670,740
========== ==========
See notes to financial statements.
- 2 -
RITE AID SERVICES, L.L.C. 401(K) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2006
--------------------------------------------------------------------------------
ADDITIONS:
Employee contributions 201,958
Employer contributions 12
Plan Transfers 1,517,596
Net appreciation in fair value of investments 265,646
Investment income 100,321
---------
Total additions 2,085,533
---------
DEDUCTIONS:
Benefit payments 51,341
Administrative expenses 765
---------
Total deductions 52,106
---------
INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS 2,033,427
NET ASSETS AVAILABLE FOR BENEFITS--Beginning of year 2,670,740
---------
NET ASSETS AVAILABLE FOR BENEFITS--End of year $4,704,167
==========
See notes to financial statements.
- 3 -
RITE AID SERVICES, L.L.C. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2006 AND 2005, AND FOR THE YEAR ENDED DECEMBER 31, 2006
--------------------------------------------------------------------------------
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.
The Plan Administrator merged an affiliated defined contribution plan, the
Rite Aid Services, L.L.C. Union Pension Plan, into the Plan. The merger
was completed on September 29, 2006.
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--Each year a participant may elect to contribute up to 15%
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; however, there is no Plan Sponsor match except for
one-time contributions recorded pursuant to the operational failures
described in Note 8 below.
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 17 mutual funds, 5
custom funds, 2 common/collective trusts, 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.
- 4 -
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.
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, 2006 and 2005, forfeited nonvested
accounts totaled $0 and $705, respectively.
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
retroactive 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. The adoption of the FSP did not impact the amount
of net assets available for benefits at December 31, 2005.
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. Common collective
- 5 -
trust funds with underlying investments in investment contracts are valued
at fair market value of the underlying investments and then adjusted by
the issuer to contract value.
The stable value fund ("SVF") includes two fully benefit-responsive
synthetic guaranteed investment contracts ("GIC") whose underlying
investments are stated at fair value investments 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 quoted 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.
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 960 and 877 shares of Company common stock at December 31,
2006 and 2005, 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. For the first three quarters of 2006, Prudential declared
an effective annual interest rate at the beginning of each calendar
quarter which is credited and compounded on a daily basis. Beginning with
the fourth calendar quarter, 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, 2006, 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
- 6 -
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.
3. 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 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.
2006 2005
Average yields:
Based on annualized earnings (1) 5.33% 5.08%
Based on interest rate credited to participants (2) 4.55% 4.64%
(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.
- 7 -
4. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
assets:
2006 2005
Stable Value Fund $1,165,791 $1,128,720
Dodge & Cox Balanced Fund 531,956 282,812
T. Rowe Price Retirement 2025 468,960 10,342
T. Rowe Price Retirement 2020 440,579 82,292
T. Rowe Price Retirement 2015 302,873 38,771
T. Rowe Price Retirement 2030 291,941 58,649
T. Rowe Price Equity Index Trust 283,346 261,141
Northern Trust Global Advisors Large-Cap Growth Fund 198,230 226,972
The Plan's investments (including gains and losses on investments bought
and sold, as well as held during the year) appreciated in value for the
year ended December 31, 2006, as follows:
Investments:
Rite Aid Corporate Stock $ 1,620
Mutual Funds 121,868
Custom Funds 51,443
Common Collective Trusts 38,425
Stable Value Funds 52,290
-------
Net appreciation (depreciation) in fair value of investments $265,646
=======
5. 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.
6. 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.
7. 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.
- 8 -
8. CONTINGENCY
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 reviewed
the administration of the Plan for purposes of determining compliance with
provisions of the Plan and regulatory requirements. The Plan Administrator
identified certain processes not in compliance with the provisions of the
Plan or regulatory requirements. As a result of this review, in July 2001,
the Plan Administrator submitted a Voluntary Correction Program ("VCP")
filing with the IRS requesting a compliance statement and approval of the
correction method for operational failures identified. On August 20, 2004,
the Plan Administrator received a fully executed compliance statement
containing IRS approval of the correction methods submitted. The Plan
Sponsor completed all corrections in accordance with the compliance
statement by January 2005, thereby eliminating exposure to penalties,
taxes or disqualification by the IRS.
Subsequent to the July 2001 filing, the Plan Administrator identified
other operational failures in the Plan, including a failure to make
certain deferral contributions. The Plan Administrator has not submitted a
VCP filing with the IRS requesting a compliance statement and approval of
the correction method for these additional operational failures identified
in the Plan. The Plan Administrator expects to submit this VCP filing in
2007. 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.
9. 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, 2006.
2006
Net assets available for benefits per the financial
statements at contract value $ 4,704,167
Adjustment from contract value to fair value for fully
benefit-responsive investment contracts (9,897)
-----------
Net assets available for benefits per the Form 5500 $ 4,694,270
===========
For the year ended December 31, 2006, the following is a reconciliation of
net investment income per the financial statements to the Form 5500:
Total net appreciation in contract value of investments $ 265,646
Total investment income 100,321
Adjustment of net appreciation and investment income (9,897)
-----------
Total earnings per the Form 5500 $ 356,070
===========
******
- 9 -
SUPPLEMENTAL SCHEDULE
- 10 -
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, 2006
--------------------------------------------------------------------------------------------------------------------------
Identity of Issuer, Borrower, At
Lessor or Similar Party and Description Number Fair Market
Common and collective trusts:
*T. Rowe Price Equity Index Trust 6,844 $ 290,601
*T. Rowe Price Bond Index Trust 206 4,972
-----------------
Total common and collective trusts 295,573
-----------------
Mutual Funds:
*T. Rowe Price Retirement 2025 36,467 468,960
*T. Rowe Price Retirement 2020 25,394 440,579
*T. Rowe Price Retirement 2015 24,484 302,873
*T. Rowe Price Retirement 2030 15,704 291,941
*T. Rowe Price Retirement 2010 9,550 151,558
*T. Rowe Price Retirement 2035 5,687 74,895
*T. Rowe Price International Equity Index Fund 4,339 63,435
*T. Rowe Price Retirement 2040 2,104 39,447
*T. Rowe Price Extended Equity Market Index Fund 1,060 17,461
*T. Rowe Price Retirement 2005 571 6,631
*T. Rowe Price Retirement Income Fund 107 1,407
*T. Rowe Price Retirement 2045 26 316
Dodge & Cox Balanced Fund 6,109 531,956
Pimco Total Return Fund 4,673 48,510
Vanguard Small-Cap Index Fund 1,179 38,486
-----------------
Total mutual funds 2,478,455
-----------------
Custom Funds:
Northern Trust Global Advisors Large-Cap Growth Fund 16,182 198,230
Northern Trust Global Advisors International Equity Fund 7,986 126,976
Northern Trust Global Advisors Mid-Cap Fund 7,813 102,891
Northern Trust Global Advisors Small-Cap Fund 5,387 79,887
Northern Trust Global Advisors Large-Cap Value Fund 2,152 29,717
-----------------
Total custom funds 537,701
-----------------
Stable Value Fund Synthetic Guaranteed Investment Contract:
Prudential and *T. Rowe Price Stable Value Fund 103,810 1,148,485
-----------------
Total Stable Value Fund Synthetic Guaranteed Investment Contract 1,148,485
-----------------
Company Stock Fund:
*Rite Aid Corporation Company Stock Fund 960 5,223
*Participant notes Loan Fund** 223,969
-----------------
Total Assets Held at End $ 4,689,406
=================
* Party-in-interest
** The loans range in interest rates from 5.0% to 9.5% and expire through 2021.
- 11 -
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/ 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 29, 2007
- 12 -
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
23.1 Consent of Independent Registered Public Accounting Firm