Rite Aid 2015 Annual Report Download - page 73

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 28, 2015, March 1, 2014 and March 2, 2013
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Deferred Financing Costs
Costs incurred to issue debt are deferred and amortized as a component of interest expense over
the terms of the related debt agreements. Amortization expense of deferred financing costs was
$15,301, $15,259 and $21,896 for fiscal 2015, 2014 and 2013, respectively.
Revenue Recognition
For front end sales, the Company recognizes revenue from the sale of merchandise at the time the
merchandise is sold. The Company records revenue net of an allowance for estimated future returns.
Return activity is immaterial to revenues and results of operations in all periods presented. For third
party payor pharmacy sales, revenue is recognized at the time the prescription is filled, which is or
approximates when the customer picks up the prescription and is recorded net of an allowance for
prescriptions that were filled but will not be picked up by the customer. For all periods presented,
there is no material difference between the revenue recognized at the time the prescription is filled and
that which would be recognized when the customer picks up the prescription. For cash prescriptions
and patient third party payor co-payments, the Company recognizes revenue when the patient picks up
the prescription and tenders the cash price or patient third party payor co-payment amount at the point
of sale. Prescriptions are generally not returnable.
The Company offers a chain wide loyalty card program titled wellness +. Members participating in
the 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 entitles such customers 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
them to receive a 20% discount on qualifying purchases of front end merchandise for the remaining
portion of the calendar year and also the next calendar year. There are also similar ‘‘Silver’’ and
‘‘Bronze’’ levels with lower thresholds and benefit levels.
As wellness + customers accumulate points, the Company defers the value of the points earned as
deferred revenue (included in other current and noncurrent liabilities, 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, the Company recognizes an allocable
portion of the deferred revenue. The Company deferred $111,208 as of February 28, 2015 of which
$89,657 is included in other current liabilities and $21,551 is included in noncurrent liabilities. The
Company deferred $103,562 as of March 1, 2014 of which $83,668 is included in other current liabilities
and $19,894 is included in noncurrent liabilities.
Cost of Goods Sold
Cost of goods sold includes the following: the cost of inventory sold during the period, including
related vendor rebates and allowances, LIFO credit or charges, costs incurred to return merchandise to
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