Rite Aid 2016 Annual Report Download - page 95

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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 27, 2016, February 28, 2015 and March 1, 2014
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Pharmacy Services Segment
The Pharmacy Services segment, through its EIC subsidiary, participates in the federal
government’s Medicare Part D program as a PDP. Net revenues of $162,620 (0.5% of consolidated
revenues) include insurance premiums earned by the PDP, which are determined based on the PDP’s
annual bid and related contractual arrangements with CMS.
EIC has entered into a quota share reinsurance agreement with Swiss Re Life & Health
America Inc. (‘‘Swiss Re’’) whereby they assume a quota share percentage of the company’s Medicare
Part D program. Fifty percent of the net revenue and net cost of revenue for EIC has been ceded to
Swiss Re under this agreement.
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 27, 2016 and February 28, 2015, the Company had no
interest rate swap arrangements or other derivatives.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases, (Topic 842), which is intended to
improve financial reporting around leasing transactions. The ASU affects all companies and other
organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real
estate and manufacturing equipment. This ASU will require organizations that lease assets—referred to
as ‘‘leases’’—to recognize on the balance sheet the assets and liabilities for the rights and obligations
created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those
years beginning January 1, 2019. The Company is in process of assessing the impact of the adoption of
ASU No. 2016-02 on its financial position, results of operations and cash flows.
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, 2017, and for interim periods within those fiscal years. The Company is in the process of
assessing the impact of the adoption of ASU 2014-09 on its financial position, results of operations and
cash flows.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation—Amendments to the
Consolidation Analysis (Topic 810). This ASU requires reporting entities to reevaluate whether they
should consolidate certain legal entities under the revised consolidation model. This standard modifies
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