Rite Aid 2014 Annual Report Download - page 70

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 1, 2014, March 2, 2013 and March 3, 2012
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
Sales Tax Collected
Sales taxes collected from customers and remitted to various governmental agencies are presented
on a net basis (excluded from revenues) in the Company’s statement of operations.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Significant Concentrations
The Company’s pharmacy sales were primarily to customers covered by health plan contracts,
which typically contract with a third party payor that agrees to pay for all or a portion of a customer’s
eligible prescription purchases. During fiscal 2014, the top five third party payors accounted for
approximately 65.8% of the Company’s pharmacy sales. The largest third party payor, Express Scripts,
represented 31.6% and 35.3% of pharmacy sales during fiscal 2014 and 2013, respectively. The largest
third party payor during fiscal 2012, Medco Health Solutions, represented 22.9% of pharmacy sales.
Third party payors are entities such as an insurance company, governmental agency, health
maintenance organization or other managed care provider, and typically represent several health care
contracts and customers.
During fiscal 2014, state sponsored Medicaid agencies and related managed care Medicaid payors
accounted for approximately 13.7% of the Company’s pharmacy sales, the largest of which was
approximately 1.1% of the Company’s pharmacy sales. During fiscal 2014, approximately 30.6% of the
Company’s pharmacy sales were to customers covered by Medicare Part D. Any significant loss of
third-party payor business could have a material adverse effect on the Company’s business and results
of operations.
During fiscal 2014, the Company purchased brand pharmaceuticals and some generic
pharmaceuticals, which amounted to approximately 88.2% of the dollar volume of its prescription
drugs, from a single wholesaler, McKesson Corporation (‘‘McKesson’’), under a contract that the
Company amended and restated in February 2014 and now runs through March 31, 2019. Under the
amended and restated contract, with limited exceptions, the Company is required to purchase all of its
branded pharmaceutical products and almost all of its generic (non-brand name) pharmaceutical
products 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
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