Rite Aid 2011 Annual Report Download - page 11

Camp Hill, Pennsylvania 17011, Attention: Corporate Secretary. Our Board will regularly review
corporate governance developments and modify these materials and practices as warranted.
Our website also provides information on how to contact us and other items of interest to
investors. We make available on our website, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, Extensible Business Reporting Language (XBRL) data files of our
annual report and quarterly reports beginning with our fiscal 2011 second quarter 10-Q, current reports
on Form 8-K and all amendments to these reports, as soon as reasonably practicable after we file these
reports with, or furnish them to, the SEC.
Item 1A. Risk Factors
Factors Affecting our Future Prospects
Set forth below is a description of certain risk factors which we believe may be relevant to an
understanding of us and our business. Security holders are cautioned that these and other factors may
affect future performance and cause actual results to differ from those which may be anticipated. See
‘‘Cautionary Statement Regarding Forward-Looking Statements.’’
Risks Related to Our Financial Condition
Current economic conditions may adversely affect our industry, business and results of operations.
The United States economy is continuing to feel the impact of the economic downturn that began
in late 2007, and the future economic environment may not fully recover to levels prior to the
downturn. This economic uncertainty has and could further lead to reduced consumer spending for the
foreseeable future. If consumer spending continues to decrease or does not recover, we will likely not
be able to improve our same store sales. In addition, reduced or flat consumer spending may drive us
and our competitors to offer additional products at promotional prices, which would have a negative
impact on our gross profit. We operate a number of stores in areas that are experiencing a lower
recovery than the economy on a national level. A continued softening or slow recovery in consumer
spending may adversely affect our industry, business and results of operations. Reduced revenues as a
result of decreased consumer spending may also reduce our liquidity and otherwise hinder our ability to
implement our long term strategy.
We are highly leveraged. Our substantial indebtedness could limit cash flow available for our operations and
could adversely affect our ability to service debt or obtain additional financing if necessary.
We had, as of February 26, 2011, $6.2 billion of outstanding indebtedness and stockholders’ deficit
of $2.2 billion. We also had additional borrowing capacity under our existing $1.175 billion senior
secured revolving credit facility of approximately $1.0 billion, net of outstanding letters of credit of
$143.0 million. Our earnings were insufficient to cover fixed charges and preferred stock dividends for
fiscal 2011, 2010, 2009, 2008 and 2007 by $564.8 million, $498.4 million, $2.6 billion, $340.6 million and
$50.8 million, respectively.
Our high level of indebtedness will continue to restrict our operations. Among other things, our
indebtedness will:
• limit our flexibility in planning for, or reacting to, changes in the markets in which we compete;
• place us at a competitive disadvantage relative to our competitors with less indebtedness;
• render us more vulnerable to general adverse economic, regulatory and industry conditions; and
• require us to dedicate a substantial portion of our cash flow to service our debt.
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