Rite Aid 2013 Annual Report Download - page 44

We also evaluate assets to be disposed of on a quarterly basis to determine if an additional
impairment charge is required. Fair value estimates are provided by independent brokers who operate
in the local markets where the assets are located.
If our actual future cash flows differ from our projections materially, certain stores that are either
not impaired or partially impaired in the current period may be further impaired in future periods. A
100 basis point decrease in our future sales assumptions as of March 2, 2013 would have resulted in an
additional fiscal 2013 impairment charge of $13.0 million. A 100 basis point increase in our future sales
assumptions as of March 2, 2013 would have reduced the fiscal 2013 impairment charge by $4.0 million.
Changes in our discount rate of 50 basis points would not have a material impact on the total
impairment recorded in fiscal 2013.
Revenue recognition for our loyalty program: We offer a chain wide customer loyalty program,
‘‘wellness+’’. Members participating in our wellness+ loyalty card program earn points on a calendar
year basis for eligible front end merchandise purchases and qualifying prescriptions. One point is
awarded for each dollar spent towards front end merchandise and 25 points are awarded for each
qualifying prescription.
Members reach specific wellness+ tiers based on the points accumulated during the calendar year,
which entitle them to certain future discounts and other benefits upon reaching that tier. For example,
any customer that reaches 1,000 points in a calendar year achieves the ‘‘Gold’’ tier, enabling the
customer to receive a 20% discount on qualifying purchases of front end merchandise for the
remaining portion of the calendar year and the next calendar year. There are also similar ‘‘Silver’’ and
‘‘Bronze’’ levels with lower thresholds and benefit levels.
As wellness+ customers accumulate points, we defer the value of the points earned as deferred
revenue based on the expected usage. The amount deferred is based on historic and projected customer
activity (e.g., tier level, spending level). As customers receive discounted front end merchandise, we
recognize an allocable portion of the deferred revenue. If the achieved combined Gold, Silver, and
Bronze levels differ from the assumptions by 5.0% it would have affected pretax income by
$1.3 million. If the assumed spending levels, which are the drivers of future discounts, differ by 5.0% it
would have affected pretax income by $1.3 million.
Self-insurance liabilities: We expense claims for self-insured workers’ compensation and general
liability insurance coverage as incurred including an estimate for claims incurred but not paid. The
expense for self-insured workers’ compensation and general liability claims incurred but not paid is
determined using several factors, including historical claims experience and development, severity of
claims, medical costs and the time needed to settle claims. We discount the estimated expense for
workers’ compensation to present value as the time period from incurrence of the claim to final
settlement can be several years. We base our estimates for such timing on previous settlement activity.
The discount rate is based on the current market rates for Treasury bills that approximate the average
time to settle the workers’ compensation claims. These assumptions are updated on an annual basis. A
25 basis point difference in the discount rate for the year ended March 2, 2013, would have affected
pretax income by approximately $2.3 million.
Lease termination charges: We record reserves for closed stores based on future lease
commitments, anticipated ancillary occupancy costs and anticipated future subleases of properties. The
reserves are calculated at the individual location level and the assumptions are assessed at that level.
The reserve for lease exit liabilities is discounted using a credit adjusted risk free interest rate. Reserve
estimates and related assumptions are updated on a quarterly basis.
A substantial amount of our closed stores were closed prior to our adoption of ASC 420, ‘‘Exit or
Disposal Cost Obligations.’’ Therefore, if interest rates change, reserves may be increased or decreased.
In addition, changes in the real estate leasing markets can have an impact on the reserve. As of
43