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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 11, 1999
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RITE AID CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 1-5742 23-1614034
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
30 Hunter Lane, Camp Hill, Pennsylvania 17011
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 761-2633
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ITEM 4. Changes in Registrant's Certifying Accountant.
On November 11, 1999, the firm of KPMG LLP ("KPMG") orally notified a
member of the Audit Committee and the Registrant of their resignation as
auditors of the Registrant because they were unable to continue to rely on
management's representations.
By letter dated November 11, 1999, KPMG advised the Registrant that, in
light of the Registrant's announcement on October 18, 1999 that the Registrant
is planning to restate its consolidated balance sheets as of February 27, 1999
and February 28, 1998 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended February 27, 1999, KPMG's auditors' report thereon dated May 28,
1999 "should no longer be relied upon." In addition, KPMG requested that the
Registrant advise those persons who have received a copy of KPMG's report and
those persons that the Registrant believes are relying or are likely to rely on
the financial statements to be restated and the related report "of [KPMG's]
notification to [the Registrant] that the Financial Statements and the Report
should no longer be relied upon." (A copy of this letter is attached as Exhibit
99.1 hereto.) The withdrawn report and KPMG's report on the Registrant's
consolidated financial statements for the fiscal year ended February 28, 1998
did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
On November 2, 1999, the Registrant filed its Quarterly Report on Form 10-Q
for the thirteen and twenty-six weeks ended August 28, 1999, which included
certain restated financial information. KPMG did not audit, review, or otherwise
report on the financial statements included in the Form 10-Q. In view of KPMG's
resignation on November 11, 1999, the Registrant was not able to resolve to
KPMG's satisfaction, prior to their resignation, the amounts and causes of the
restatement adjustments identified in the Registrant's most recently filed Form
10-Q and the additional restatement adjustments which may be required with
respect to prior periods not included in that Form 10-Q. KPMG discussed certain
of these matters with members of the Audit Committee. The Registrant is
continuing to review its accounting practices for the past several years.
In connection with the audits of the Registrant's consolidated financial
statements for the fiscal years ended February 27, 1999 and February 28, 1998,
and during the subsequent unaudited interim periods since the most recently
ended fiscal year, there were no disagreements with KPMG on matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to the satisfaction of KPMG, would
have caused KPMG to make reference to the matter in their report other than as
follows:
In connection with the audit of the Registrant's consolidated financial
statements for the fiscal year ended February 27, 1999, KPMG reported to the
Registrant's Audit Committee the following three disagreements between KPMG and
the Registrant:
(1) KPMG disagreed with the Registrant's view that certain amounts
could be reflected as income based upon estimates of
recoveries from vendors.
(2) KPMG disagreed with the Registrant's accounting for certain
deferred costs.
(3) KPMG disagreed with the Registrant's accounting for certain
expenses charged against its acquisition accruals.
With respect to these matters, the Registrant adjusted its financial
statements to record its estimates of the appropriate amounts.
The Registrant has authorized KPMG to respond fully to any successor
independent accounting firm regarding KPMG's audit of the Registrant's financial
statements, the disagreements with the Registrant in connection therewith, the
Reportable Events and KPMG's resignation as auditors of the Registrant.
At an Audit Committee meeting on June 30, 1999, KPMG delivered a letter to
the Audit Committee dated June 24, 1999 describing the following material
weakness in the Registrant's internal controls. The letter stated that the
Registrant's internal controls were insufficient to allow the Registrant's
management "to accumulate and reconcile information necessary to properly record
and analyze transactions on a timely basis." The letter suggested the
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following actions to "significantly enhance the quality of [the Registrant's]
financial accounting and reporting function": "(a) adding sufficient qualified
accounting personnel, (b) improving the financial accounting systems, which
produce the necessary data, (c) analyzing the data on a timely basis, and (d)
significantly improving documentation supporting transactions, journal entries,
and business decisions on a timely basis." KPMG has asserted that it informed
the Registrant on June 23, 1999 and the Audit Committee at the June 30, 1999
meeting that, as a result of the issuance of the material weakness letter, KPMG
would not be in a position to issue quarterly review reports until the matters
referred to above were addressed and resolved. In addition, KPMG has asserted
that they informed the Registrant on June 23, 1999 and the Audit Committee at
the June 30, 1999 meeting that KPMG was no longer willing to rely on
representations made by the then serving Chief Financial Officer. Each member of
the Audit Committee and another member of the Registrant's Board of Directors
who attended the June 30, 1999 Audit Committee meeting deny that any such
statements were made at that meeting or at any other time. The Chief Financial
Officer was replaced on July 14, 1999. Subsequent to June 24, 1999, the
Registrant has created new positions in the financial accounting and reporting
department and has filled and is seeking to fill those positions with qualified
personnel. The Registrant is evaluating system needs in order to improve its
financial accounting systems. The Registrant has restructured its accounting and
financial reporting function to strengthen communication and accountability and
is revising its processes and procedures with respect to transactions, journal
entries and approvals to improve the timeliness with which it is able to
document and analyze financial data.
Simultaneously with their resignation on November 11, 1999, KPMG also
advised the member of the Audit Committee and the Registrant that KPMG had
concerns about the amounts the Registrant charged certain vendors relating to
damaged or outdated products. In June 1999, the Registrant engaged a third party
to handle all damaged or outdated products, including obtaining appropriate
refunds, and accordingly, the Registrant is no longer involved in processing
damaged or outdated products. In view of KPMG's resignation on November 11,
1999, there was no opportunity for the Registrant to resolve this matter to
KPMG's satisfaction prior to their resignation.
The Registrant is in the process of engaging new independent
accountants to audit and report on the Registrant's restated consolidated
balance sheets as of February 27, 1999 and February 28, 1998 and the related
restated consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended February 27, 1999. The new
independent accountants will also audit the Registrant's consolidated financial
statements for the fiscal year ending February 26, 2000.
ITEM 5. Other Events
The Registrant has been advised that the Securities and Exchange Commission
has commenced a formal investigation of the Registrant.
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ITEM 7. Financial Statements and Exhibits
(c) The following exhibits are filed with this report:
Exhibit Number Description
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16.1 Letter of KPMG LLP dated November __, 1999*
99.1 Letter of KPMG LLP dated November 11, 1999
* To be filed by amendment.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RITE AID CORPORATION
Date: November 18, 1999 By: /s/ Elliot T. Gerson
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Name: Elliot T. Gerson
Title: Senior Executive
Vice President,
Secretary and
General Counsel
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EXHIBIT INDEX
Exhibit Number Description
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99.1 Letter of KPMG LLP dated November 11, 1999
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Exhibit 99.1
[LETTERHEAD OF KPMG]
BY HAND DELIVERY
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November 11, 1999
Board of Directors
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Board of Directors:
We have examined the consolidated balance sheets of Rite Aid Corporation and
subsidiaries (the "Company") as of February 27, 1999 and February 28, 1998 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended February 27, 1999
(the "Financial Statements") and issued our auditors' report thereon dated May
28, 1999 (the "Report").
In light of the Company's announcement in its press release dated October 18,
1999, to the effect that the Company is "planning to restate its quarterly and
annual financial statements for each of its 1999, 1998, and 1997 fiscal years
and for prior years," we cannot continue to be associated with the Financial
Statements. Accordingly, KPMG LLP hereby advises you that our Report on the
Company's Financial Statements should no longer be relied upon.
We request that to the extent you have not already done so, you promptly advise
those persons who have received a copy of the Report, and whom you believe are
relying on the Financial Statements and the related Report, or who are likely to
rely upon the Financial Statements and the related Report, of our notification
to you that the Financial Statements and the Report should no longer be relied
upon. Further, we ask you to determine, together with your legal counsel, the
disclosure(s) which the Company should make to the United States Securities and
Exchange Commission and any other regulatory body having jurisdiction over the
Company. We request that you promptly supply us with copies of any notifications
you make pursuant to the request set forth in this paragraph.
Very truly yours,
/s/ KPMG LLP
