Rite Aid 2014 Annual Report Download - page 15

results of operations, financial condition and cash flows and our ability to make principal or interest
payments on our debt.
We purchase all of our brand and generic drugs from a single wholesaler. A disruption in this relationship
may have a negative effect on us.
We purchase all of our brand prescription and beginning during fiscal 2015, will purchase, with
limited exceptions, all of our generic drugs from a single wholesaler, McKesson. Pharmacy sales
represented approximately 67.9% of our total sales during fiscal 2014. While we believe that alternative
sources of supply for most generic and brand name pharmaceuticals are readily available, a significant
disruption in our relationship with McKesson could make it difficult for us to continue to operate our
business on a regular basis until we executed a replacement wholesaler agreement or developed and
implemented self-distribution processes. We believe we could obtain and qualify alternative sources,
including through self-distribution, for substantially all of the prescription drugs we sell on an
acceptable basis, and accordingly that the impact of any disruption would be temporary. 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 could adversely effect us.
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. Although we deploy a layered approach to address
information security threats and vulnerabilities, including ones from a cyber security standpoint,
designed to protect confidential information against data security breaches, a compromise of our
information security controls or of those businesses with whom we interact, which results in confidential
information being accessed, obtained, damaged or used by unauthorized or improper persons, could
harm our reputation and expose us to regulatory actions and claims from customers and clients,
financial institutions, payment card associations and other persons, any of which could adversely affect
our business, financial position and results of operations. Moreover, a data security breach could
require that we expend significant resources related to our information systems and infrastructure, and
could distract management and other key personnel from performing their primary operational duties.
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 experience loss of critical data and interruptions or
delays in our ability to perform critical functions, which could adversely affect our business and results
of operations. Any compromise of our security could also result in a violation of applicable privacy and
other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the
information and a loss of confidence in our security measures, which could harm our business.
Although we maintain cyber security insurance, we cannot assure you that the coverage limits under
our insurance program will be adequate to protect us against future claims.
Risks Related to our Industry
The markets in which we operate are very competitive and further increases in competition could adversely
affect us.
We face intense competition with local, regional and national companies, including other drugstore
chains, independently owned drugstores, supermarkets, mass merchandisers, dollar stores and internet
pharmacies. Competition from discount stores has significantly increased during the past few years. Our
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