Rite Aid 2015 Annual Report Download - page 77

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)
On February 17, 2014, the Company executed an expanded five-year agreement with McKesson
Corporation (‘‘McKesson’’) for pharmaceutical purchasing and distribution (our ‘‘Purchasing and
Delivery Arrangement’’). As part of its Purchasing and Delivery Arrangement, McKesson assumed
responsibility for purchasing essentially all of the brand and generic medications the Company
dispenses as well as providing a new direct store delivery model to all of the Company’s stores. During
fiscal 2015, the Company purchased brand and generic pharmaceuticals, which amounted to
approximately 94.8% of the dollar volume of its prescription drugs from McKesson. If the Company’s
relationship with McKesson was disrupted, it could temporarily have difficulty filling prescriptions for
brand-named and generic drugs until it executed a replacement wholesaler agreement or developed and
implemented self- distribution processes.
Derivatives
The Company may enter into interest rate swap agreements to hedge the exposure to increasing
rates with respect to its variable rate debt, when the Company deems it prudent to do so. Upon
inception of interest rate swap agreements, or modifications thereto, the Company performs a
comprehensive review of the interest rate swap agreements based on the criteria as provided by
ASC 815, ‘‘Derivatives and Hedging.’’ As of February 28, 2015 and March 1, 2014, the Company had
no interest rate swap arrangements or other derivatives.
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit when
a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU
No. 2013-11 requires an entity to present unrecognized tax benefits as a reduction to deferred tax
assets when a net operating loss carryforward, similar tax loss or a tax credit carryforward exists, with
limited exceptions. ASU No. 2013-11 is effective for fiscal years beginning on or after December 15,
2013, and for interim periods within those fiscal years. This pronouncement had no effect on the
financial statements as the Company has historically presented uncertain tax positions in accordance
with ASU No. 2013-11.
In May 2013, the FASB issued a proposed Accounting Standards Update, Leases (Topic 842): a
revision of the 2010 proposed Accounting Standards Update, Leases (Topic 840), that would require an
entity to recognize assets and liabilities arising under lease contracts on the balance sheet. The
proposed standard, as currently drafted, will have a material impact on the Company’s reported results
of operations and financial position.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This
ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605—
Revenue Recognition and most industry-specific guidance throughout the Codification. The standard
requires that an entity recognizes revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the company expects to be entitled in
exchange for those goods or services. This ASU is effective for fiscal years beginning after
December 15, 2016, and for interim periods within those fiscal years. The Company is in the process of
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