Rite Aid 2016 Annual Report Download - page 94

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)
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
Retail Pharmacy Segment
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 2016, the top five third party payors accounted for
approximately 70.4% of the Company’s pharmacy sales. The largest third party payor, Express Scripts,
represented 25.3%, 27.8% and 31.6% of pharmacy sales during fiscal 2016, 2015 and 2014, respectively.
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 2016, state sponsored Medicaid agencies and related managed care Medicaid payors
accounted for approximately 19.9% of the Company’s pharmacy sales, the largest of which was
approximately 1.5% of the Company’s pharmacy sales. During fiscal 2016, approximately 31.9% 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.
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 2016, the Company purchased brand and generic pharmaceuticals, which amounted to
approximately 97.5% 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.
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