Rite Aid 2013 Annual Report Download - page 16

Download and view the complete annual report

Please find page 16 of the 2013 Rite Aid annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 125

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125

Coutu Group may have the power, subject to applicable law (including the fiduciary duties of the
directors designated by Jean Coutu Group), to significantly influence actions that might be favorable to
Jean Coutu Group, but not necessarily favorable to our financial condition and results of operations. In
addition, the ownership position and governance rights of Jean Coutu Group could discourage a third
party from proposing a change of control or other strategic transaction concerning us.
Conflicts of interest may arise between us and Jean Coutu Group, which may be resolved in a manner that
adversely affects our business, financial condition or results of operations.
Following the Brooks Eckerd acquisition, Jean Coutu Group has continued its Canadian
operations but no longer has any operations in the United States, and we currently have no operations
in Canada. Despite the lack of geographic overlap, conflicts of interest may arise between us and Jean
Coutu Group in areas relating to past, ongoing and future relationships, including corporate
opportunities, potential acquisitions or financing transactions, sales or other dispositions by Jean Coutu
Group of its interests in us and the exercise by Jean Coutu Group of its influence over our
management and affairs.
One director on our board of directors is also an officer and director of Jean Coutu Group or its
subsidiaries. Service as a director or officer of both Rite Aid and Jean Coutu Group or its other
subsidiaries could create conflicts of interest if such person is faced with decisions that could have
materially different implications for Rite Aid and for Jean Coutu Group. Apart from the conflicts of
interest policy contained in our Code of Ethics and Business Conduct and applicable to our directors,
we and Jean Coutu Group have not established any formal procedures for us and Jean Coutu Group to
resolve potential or actual conflicts of interest between us. There can be no assurance that any of the
foregoing conflicts will be resolved in a manner that does not adversely affect our business, financial
condition or results of operations.
We are substantially dependent on a single wholesaler of branded pharmaceutical products to sell products to
us on satisfactory terms. A disruption in this relationship may have a negative effect on our results of
operations, financial condition and cash flow.
We purchase all of our brand prescription drugs from a single wholesaler, McKesson, pursuant to a
supply contract that runs through March 31, 2016. Pharmacy sales represented approximately 67.6% of
our total sales during fiscal 2013, and, therefore, our relationship with McKesson is important to us.
Any significant disruptions in our relationship with McKesson would make it difficult for us to continue
to operate our business until we executed a replacement wholesaler agreement or developed and
implemented self-distribution processes. There can be no assurance that we would be able to find a
replacement wholesaler on a timely basis or that such a wholesaler would be able to fulfill our demands
on similar terms, which would have a material adverse effect on our results of operations, financial
condition and cash flows. In addition, because McKesson acts as a wholesaler for drugs purchased from
ultimate manufacturers worldwide, any disruption in the supply of a given drug could adversely impact
McKesson’s ability to fulfill our demands, which would have a material adverse effect on our results of
operations, financial condition and cash flows.
A significant disruption in our computer systems or a cyber security breach could adversely affect our
operations.
We rely extensively on our computer systems to manage our ordering, pricing, point-of-sale,
inventory replenishment and other processes. Our systems are subject to damage or interruption from
power outages, computer and telecommunications failures, computer viruses, cyber security breaches,
vandalism, severe weather conditions, catastrophic events and human error, and our disaster recovery
planning cannot account for all eventualities. If our systems are damaged, fail to function properly or
otherwise become unavailable, we may incur substantial costs to repair or replace them, and may
15