SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-5742
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
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, 2001 and 2000
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 2001:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-8
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2001:
Schedule of Assets Held for Investment Purposes 9
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2000:
Schedule of Assets Held for Investment Purposes 10
SUPPLEMENTAL SCHEDULE FOR THE YEAR ENDED DECEMBER 31, 1999:
Schedule of Prohibited Transactions 11
INDEPENDENT AUDITORS' REPORT
To the Trustee 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, 2001 and 2000, and the related statement of changes in net
assets available for benefits for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December
31, 2001 and 2000, and the changes in net assets available for benefits for
each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of
America.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules
listed in the table of contents are presented for the purpose of additional
analysis and are not a required part of the basic financial statements, but
are supplementary information required by the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974. These schedules are the responsibility of the
Plan's management. Such supplemental schedules have been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
June 13, 2002
PERRY DISTRIBUTORS, INC. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
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2001 2000
ASSETS:
Investments $ 1,786,412 $ 1,651,366
Contributions receivable:
Employer 481 2,285
Employee 7,215 7,388
Total contributions receivable 7,696 9,673
----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,794,108 $ 1,661,039
=========== ===========
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, 2001, 2000 AND 1999
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December 31,
-----------------------------------------------------
2001 2000 1999
ADDITIONS:
Employee contributions $ 201,057 $ 200,022 $ 199,681
Employer contributions 32,651 64,652 133,265
Rollover contributions - 2,001 -
Investment income 68,667 63,411 46,390
Net (depreciation) appreciation in fair value
of investments (112,387) (90,903) 103,115
----------- ----------- -----------
Total additions, net 189,988 239,183 482,451
DEDUCTIONS:
Benefit payments 51,282 47,278 34,651
Loan defaults 5,637 4,249 -
----------- ----------- -----------
Total deductions 56,919 51,527 34,651
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INCREASE IN NET ASSETS AVAILABLE FOR
BENEFITS 133,069 187,656 447,800
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR 1,661,039 1,473,383 1,025,583
----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $ 1,794,108 $ 1,661,039 $ 1,473,383
=========== =========== ===========
See notes to financial statements.
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PERRY DISTRIBUTORS, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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") contributed to a participant's account,
(b) investment earnings (losses), and (c) any forfeitures allocated
to the account, less any administrative expenses charged to the Plan.
The Company is the Plan administrator and is responsible for the
preparation of the Plan's financial statements.
In March 1995, Perry Drug Stores, Inc. was acquired by the Company,
which became the Plan sponsor. The Company has elected to continue
this Plan.
Effective June 16, 2001, the Company 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 Company 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 Company 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 Company 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.
Investment Options - The Plan provides participants with the option
of investing in 10 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 Company
has identified loans made under the Plan resulting in an operational
failure. To correct this operational failure, the Company 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.
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Vesting - A participant is vested immediately in the participant's
voluntary contributions, plus actual earnings (losses) thereon.
Vesting in the Company's contributions is based on years of service,
as defined in the Plan document. A participant becomes fully vested
in the Company 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.
The Guaranteed Interest Account ("GIA") is a group annuity insurance
product issued by Prudential. Interest on the GIA is credited daily.
Prudential declares the current interest rate on each successive
calendar quarter which remains in effect until the end of the
following calendar year for contributions received during that
calendar quarter. The GIA is deemed to be benefit responsive,
therefore, it is presented at contract value which approximates fair
value. The average yields were 5.06%, 6.31% and 5.61% for 2001, 2000
and 1999, respectively. As of December 31, 2001 and 2000, the
crediting interest rate was 4.50% and 6.10%, respectively.
Administrative Expenses - Under the terms of the Plan agreement,
costs relating to Plan administration may be paid by the Company. For
the years ended December 31, 2001, 2000 and 1999, the Company as 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 management 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 various securities including U.S. Government
securities and corporate stocks. Investment securities, in general,
are exposed to various risks, such as interest rate, credit, and
overall market volatility. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes
in the values of investment securities will occur in the near term
and that such changes could materially affect the amounts reported in
the Statements of Net Assets Available for Benefits.
Derivative Instruments and Hedging Activities - On January 1, 2001,
the Plan adopted the Financial Accounting Standards Board Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS
No. 137 and SFAS No. 138. This standard establishes accounting and
reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize derivatives as either
assets or liabilities in the statement of financial position and to
measure those instruments at fair value. Adoption of SFAS No. 133, as
amended, did not have a material impact on the financial statements
of the Plan.
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3. INVESTMENTS
The following presents investments that represent 5% or more of the
Plan's assets:
December 31,
---------------------------
2001 2000
Prudential Guaranteed Interest Account $ 849,638 $ 743,187
Prudential Jennison Growth Fund 272,387 282,253
Prudential Stock Index Fund, Class I 195,501 181,655
Prudential Active Balanced Fund 166,494 154,609
The Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) (depreciated)
appreciated in value as follows:
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
Investments, at fair value:
Mutual Funds $(113,371) $ (87,000) $ 114,032
Common Stock 984 (3,903) (10,917)
Total (depreciation) appreciation $(112,387) $ (90,903) $ 103,115
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 Company submitted the Plan for a new determination letter
from the IRS. However, the Company, as Plan sponsor, believes that
the Plan is in compliance with the applicable requirements of the
IRC, except as otherwise disclosed in Note 7. Management believes
that the processes identified for remediation would not cause the
Plan to be disqualified by the IRS. Therefore, no provision for
income taxes has been included in the Plan's financial statements.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has
the right under the Plan to discontinue its contributions at any time
and to terminate the Plan subject to the provisions of ERISA. In the
event the Plan terminates, participants would become fully vested in
their employer contributions.
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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 Company, see
Note 7. The Company is the Plan sponsor, as defined by the Plan and,
therefore, these transactions qualify as party-in-interest
transactions. The Plan does not consider employer contributions or
benefits paid by the Plan to be party-in-interest transactions.
7. CONTINGENCIES
As of January 1, 1999, the Plan had less than 1% of its assets
invested in Company common stock (Company Stock Fund) at a share
price of $49.75. On October 12, 1999, following the Company's
announcement that its previously issued financial statements should
not be relied upon, the Company suspended all purchases of Company
stock through the Company Stock Fund. Contributions received on or
after October 12, 1999, which would otherwise have been directed to
the Company Stock Fund, were invested in the Prudential MoneyMart
Assets Fund and will continue to be invested in the Prudential
MoneyMart Assets Fund until the participant elects otherwise.
In late 1999, the Company's Board of Directors hired a new executive
management team to address and resolve various business, operational
and financial challenges confronting the Company. New management
began the process of reviewing the administration of the Plan for
purposes of determining compliance with provisions of the Plan and
regulatory requirements. Management has identified certain processes
not in compliance with the provisions of the Plan or regulatory
requirements, as follows:
a) During 2000 and 1999, the Company failed to withhold and
contribute participants' salary deferral contributions
associated with supplemental salary payments in the amount of
$24 and $252, respectively. In addition, the employer match
contributions of $13 and $164 for 2000 and 1999, respectively,
associated with such participant salary deferrals were also not
contributed to participant accounts. The Company 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 the periods in question.
The Company estimates the maximum foregone investment income on
such contributions to be $28, $26 and $12 for 2001, 2000 and
1999, respectively. The Company expects to make a contribution
to the respective participant accounts during 2002.
b) During 1999, the Company failed to remit in a timely
manner certain employee salary deferral contributions in the
amount of $84,756 to the Plan custodian, Prudential, in
accordance with the Department of Labor's rules regarding the
timeliness of depositing such employee contributions. The
Company has completed its evaluation of the amount of
investment income that would have been earned by the
participants on those contributions during the period in
question. During 2001, the Company made an additional
contribution to the Plan to be allocated to the affected
participants' accounts in the amount of $4,100, which
represents the investment income that would have been earned by
the participants had the contributions been deposited with the
trustee on a timely basis.
c) The Plan was not being operated in accordance with the Plan
document relating to the disbursement of minimum account
balances. The Plan calls for lump-sum disbursements of a
participant's account following a termination or retirement if
that participant's account is not more than $5,000. As a result of
the analysis completed in January 2002 related to this defect,
the estimate of the minimum account balances subject to
disbursement in accordance with the Plan document for Plan
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years ended December 31, 2001, 2000 and 1999 is $11,635,
$10,220 and $10,093, respectively. This defect was included
within the Voluntary Correction Program ("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 Company filed a VCP with the IRS, requesting a
compliance statement and approval of the correction method for
operational failures identified in the Plan. As of the date of this
report, no correspondence has been received from the IRS relating to
this matter other than an acknowledgment. However, management
believes that the proposed correction methods are acceptable under
current IRS guidelines.
Management believes that the processes identified for remediation
would not cause the Plan to be disqualified by the IRS. Penalties,
taxes and remedial payments, if any, due to non-compliance will be
paid by the Company.
******
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PERRY DISTRIBUTORS, INC. 401(k) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2001
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Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 1,835
*Prudential Guaranteed Interest Account 849,638
*Prudential Jennison Growth Fund 272,387
*Prudential Stock Index Fund, Class I 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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PERRY DISTRIBUTORS, INC. 401(k) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2000
------------------------------------------------------------------------------------------------
Current
Identity of Issue Description of Investment Value
*Rite Aid Corporation Company Stock Fund $ 886
*Prudential Guaranteed Interest Account 743,187
*Prudential Jennison Growth Fund 282,253
*Prudential Stock Index Fund, Class 1 181,655
*Prudential Active Balanced Fund 154,609
*Prudential International Stock Fund 67,236
*Prudential MoneyMart Assets Fund 26,710
*Prudential Government Income Fund 16,362
Fidelity Magellan Fund 32,848
Putnam Growth and Income Fund 10,259
**Participant Notes Loan Fund 135,361
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TOTAL $ 1,651,366
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* Party-in-interest
** The loans range in interest rates from 9.25% to 10.50% and expire through
2020.
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PERRY DISTRIBUTORS, INC. 401(k) PLAN
SCHEDULE OF PROHIBITED TRANSACTIONS
YEAR ENDED DECEMBER 31, 1999
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Period(s) Employee
Date Remitted to Covered by Deferral
Trustee/Custodian Payroll Amount Check Date
3/25/1999 1/16/1999 $5,245 1/21/1999
3/25/1999 1/23/1999 5,032 1/28/1999
5/26/1999 4/17/1999 4,864 4/22/1999
6/7/1999 4/24/1999 5,313 4/29/1999
3/23/2000 12/25/1999 64,302 12/30/1999
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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
/s/ Richard J. Varmecky
---------------------------------
Name: Richard J. Varmecky
Title: Trustee
Date: June 28, 2002