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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-5742
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
The Rite Aid 401(k) Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
THE RITE AID 401(k) PLAN
TABLE OF CONTENTS
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PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002
AND FOR THE YEAR ENDED DECEMBER 31, 2003:
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-8
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2003:
Form 5500, Schedule H, Line 4i - Schedule of Assets (Held at End of Year) 9
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
Plan Administrator and Participants of
The Rite Aid 401(k) Plan:
We have audited the accompanying statements of net assets available for
benefits of The Rite Aid 401(k) Plan (the "Plan") as of December 31, 2003 and
2002, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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,
2003 and 2002, and the changes in net assets available for benefits for the
year ended December 31, 2003 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 audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
/s/ Deloitte & Touche LLP
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Philadelphia, Pennsylvania
June 17, 2004
THE RITE AID 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
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2003 2002
ASSETS:
Investments $ 926,069,242 $ 743,917,852
Contributions receivable:
Employer 3,469,972 4,745,223
Employee 1,170,044 1,084,292
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Total contributions receivable 4,640,016 5,829,515
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NET ASSETS AVAILABLE FOR BENEFITS $ 930,709,258 $ 749,747,367
============= =============
See notes to financial statements.
THE RITE AID 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
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2003
ADDITIONS:
Employee contributions $ 62,725,632
Employer contributions 28,257,918
Rollover contributions 932,977
Net appreciation in fair value of investments 117,881,290
Investment income 21,799,268
-------------
Total additions 231,597,085
DEDUCTIONS:
Benefit payments 48,650,395
Loan defaults 1,984,799
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Total deductions 50,635,194
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INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS 180,961,891
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 749,747,367
-------------
NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $ 930,709,258
=============
See notes to financial statements.
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THE RITE AID 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
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1. DESCRIPTION OF THE PLAN
The following brief description of The Rite Aid 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 the Plan.
On December 11, 2002, the Plan Sponsor created the Trustee Search
Committee ("TSC"), charged with engaging an institutional trustee for
the Plan. Effective April 1, 2003, Northern Trust Company was engaged to
serve as Plan trustee with respect to all assets other than the Company
stock fund. LaSalle Bank National Association was engaged to serve as
the Plan trustee with respect to the Company stock fund. On that date,
the TSC was renamed the Employee Benefits Administration Committee and
named plan administrator ("Plan Administrator"). The Plan Administrator
is responsible for the preparation of the Plan's financial statements.
PARTICIPATION--Substantially all non-union Plan Sponsor employees become
eligible to participate in the Plan after attaining age 21 and
completing three months of service. Participants of the Plan are
eligible for matching contributions upon attaining age 21 and completing
one year of service (a twelve-month period when at least 1,000 hours are
credited).
CONTRIBUTIONS--Participants may contribute a portion of pretax annual
compensation up to the maximum dollar limit, as defined in the Plan.
Participants age 50 and over may make additional pre-tax contributions,
as defined in the Plan. The Plan Sponsor matches 100% of a participant's
pretax payroll contributions, up to a maximum of 3% of such
participant's pretax annual compensation. Thereafter, the Plan Sponsor
will match 50% of the participant's additional pretax payroll
contributions, up to a maximum of 2% of such participant's pretax annual
compensation. Compensation is limited to eligible compensation as
defined by the Plan and limited by the Internal Revenue Service ("IRS").
A participant may also contribute, or rollover, amounts representing
distributions from another qualified defined benefit or defined
contribution plan.
Various settlement agreements had been entered into with respect to
litigation involving the Company common stock held by the Plan. Under
these settlement agreements, certain additional contributions were made
to the Plan as restorative payments, which were in addition to the
contributions otherwise made to the Plan. In February 2004, restorative
payments of $7,040,602 were made to the Plan. The restorative payments
were allocated to the accounts of certain participants (as described in
the settlement agreements) whose accounts under the Plan included
investments in the Company common stock. The restorative payments are
fully vested and have been commingled with the eligible individuals'
before-tax contributions. There will be no further contributions stemming
from these settlement agreements. These restorative payment amounts
have not been recorded in the Statement of Net Assets Available for
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Benefits or the Statement of Changes in Net Assets Available for
Benefits as of and for the year ended December 31, 2003.
One of the settlement agreements also requires that the Company maintain
the safe-harbor matching formula from 2003 through 2006. In addition,
subject to the terms of that settlement agreement, the Company must make
a supplemental matching contribution in years 2003 through 2006 if the
total dollar amount of the matching contributions for all participants
for each and any of those years is less than the total dollar amount of
the 2002 matching contribution to the Plan. The Company's matching
contribution in 2003 exceeded the 2002 contribution and no such
supplemental matching contribution was required for the year ended
December 31, 2003. If a supplemental matching contribution is made, it
will be allocated to the accounts of then-current Plan participants who
received a regular matching contribution in proportion to each
participant's regular matching contribution.
INVESTMENT OPTIONS--The Plan provides a participant the discretion of
investing the participant's account balance in up to thirteen 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--A participant 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 one
loan outstanding at any one time.
VESTING--Participants are immediately vested in all employee
contributions and Plan Sponsor match contributions credited to the
participant's accounts plus actual earnings (losses) thereon.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING--The accompanying financial statements have been
prepared on the accrual basis of accounting.
INVESTMENTS--The Plan's investments are stated at fair value, except the
Guaranteed Interest Account, as measured by quoted prices in an active
market. Realized gain or loss on investment transactions is determined
using the first-in, first-out method; investment transactions are
recorded at trade date. Interest income is recorded on the accrual
basis. Dividend income is recognized on the ex-dividend date.
The Plan had 2,914,379 and 3,070,060 shares of Company common stock at
December 31, 2003 and 2002, respectively.
The Guaranteed Interest Account ("GIA") is a group annuity insurance
product issued by The Prudential Insurance Company of America. 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 calendar year following the year of purchase. The GIA is
deemed to be fully benefit responsive, therefore, it is presented at
contract value which approximates fair value. The average yield was
3.25% for 2003. As of December 31, 2003 and 2002, the crediting interest
rates were 3.00% and 3.75%, respectively.
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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, net of
forfeitures. For the year ended December 31, 2003, 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 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,
--------------------------------
2003 2002
Prudential Guaranteed Interest Account $283,411,554 $ 264,257,779
Prudential Dryden Stock Index Fund 155,727,656 81,570,235
Prudential Jennison Growth Fund 129,804,926 93,551,590
Prudential MFS Total Return Fund 95,720,393 79,151,161
Alliance Growth & Income Fund 55,056,803 36,370,831
PIMCO Total Return Fund 52,429,474 49,964,915
Prudential Strategic Partners International Value Fund 45,512,559 33,869,318
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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 in value as
follows:
Year Ended
December 31,
2003
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Investments, at fair value:
Mutual funds $ 103,634,204
Common stock 14,247,086
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Total appreciation $ 117,881,290
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4. TAX STATUS
The Plan has received a determination letter dated June 27, 2003, in
which the 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.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Plan Sponsor has
the right under the Plan to discontinue its contributions at any time
and to terminate the Plan subject to the provisions of ERISA and subject
to the terms of the settlement agreement whereby the Company must make a
supplemental matching contribution in years 2003 through 2006 if the
total dollar amount of the matching contribution for all participants
for each and any of those years is less than the total dollar amount of
the 2002 matching contribution. In the event the Plan terminates,
participants would become fully vested in the Plan Sponsor
contributions.
6. PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by
Prudential, the custodian of the Plan. The transactions related to such
investments qualify as party-in-interest transactions. The Plan has also
permitted investment in the common stock of the Plan Sponsor and
therefore these transactions qualify as party-in-interest transactions.
The Plan does not consider Plan Sponsor contributions or benefits paid
by the Plan to be party-in-interest transactions.
7. 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,
the more significant of which was as follows:
a) 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
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participant's account following a termination or retirement if
that participant's account is not more than $5,000. The
estimate of the minimum account balances subject to
disbursement in accordance with the Plan document at December
31, 2003 is $6,233,620. This defect was included within the
April 2001 Voluntary Correction of Operational Failures ("April
2001 VCO") filing with the IRS and its correction is subject to
the receipt of a compliance statement from the IRS for the
April 2001 VCO filing as described below.
In April 2001, the Plan Administrator filed the April 2001 VCO with the
IRS, requesting a compliance statement and approval of the correction
method for operational failures identified. The Plan Administrator
received a compliance statement from the IRS regarding the April 2001
VCO filing on July 18, 2003. The Plan Administrator is completing
corrections in accordance with the July 18, 2003 compliance statement.
The Plan Administrator intends to complete the correction process during
2004.
In September 2003, the Plan Administrator filed another Voluntary
Correction of Operational Failures program (the "September 2003 VCO")
with the IRS, requesting a compliance statement and approval of the
correction method for additional operational failures identified. The
Plan Administrator is in discussions with the IRS regarding the issues
identified in the September 2003 VCO. The Plan Administrator believes
that the proposed correction methods are acceptable under 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.
******
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THE RITE AID 401(k) PLAN
FORM 5500, SCHEDULE H, Line 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
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+
Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 17,602,847
*Prudential Guaranteed Interest Account 283,411,554
*Prudential Dryden Stock Index Fund 155,727,656
*Prudential Jennison Growth Fund 129,804,926
*Prudential MFS Total Return Fund 95,720,393
*Prudential Strategic Partners International Value Fund 45,512,559
*Prudential MFS Mid-Cap Growth Fund 13,666,222
AIM Small-Cap Growth Fund 1,703,515
Alliance Growth & Income Fund 55,056,803
Franklin Templeton Balance Sheet Fund 37,346,692
Lord Abbett Mid-Cap Value Fund 1,318,230
Pimco Total Return Fund 52,429,474
Sempra Energy Sempra Energy Stock 15,538,184
* Participant notes Loan Fund** 21,230,187
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TOTAL $ 926,069,242
=============
*Party-in-interest
**The loans range in interest rates from 5.00% to 12.13% and expire through 2022.
-9-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
THE RITE AID 401(k) PLAN
By: /s/ Theresa G. Nichols
--------------------------------------------------
Theresa G. Nichols, not in her individual
capacity, but solely as an authorized signatory
for the Employee Benefits Administration Committee
Date: June 28, 2004
EXHIBIT INDEX
Exhibit
Number Description
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23 Consent of Deloitte & Touche LLP