1279172--4/6/2006--DUANE_READE_HOLDINGS

related topics

{debt, indebtedness, cash}

{regulation, government, change}

{product, liability, claim}

{personnel, key, retain}

{financial, litigation, operation}

{loan, real, estate}

{cost, operation, labor}

{tax, income, asset}

{loss, insurance, financial}

{customer, product, revenue}

{stock, price, operating}

{operation, natural, condition}

{acquisition, growth, future}

Risks Related to Our Business We face a high level of competition in our markets. We operate in a concentrated region and, as a result, our business is significantly influenced by the economic conditions and other characteristics of the New York greater metropolitan area. We require a significant amount of cash flow from operations and third party financing to pay our indebtedness, to execute our business plan and to fund our other liquidity needs. Our operations are subject to trends in the healthcare industry. Changes in reimbursement levels for certain prescription drugs continue to reduce our margins on pharmacy sales and could have a material, adverse effect on our overall performance. If we fail to comply with all of the government regulations that apply to our business, we could incur substantial reimbursement obligations, damages, penalties, injunctive relief and/or exclusion from participation in federal or state healthcare programs. Changes in our effective tax rate could adversely affect our results of operations and cash flow. We could be materially and adversely affected if either of our distribution centers is shut down. We rely on a primary supplier of pharmaceutical products to sell products to us on satisfactory terms. A disruption in our relationship with this supplier could have a material, adverse effect on our business. We may be unable to attract, hire and retain qualified pharmacists, which could harm our business. Most of our employees are covered by collective bargaining agreements. A failure to negotiate new agreements when the existing agreements terminate could disrupt our business. In addition, we are a party to a National Labor Relations Board administrative proceeding regarding a dispute with one of our unions. We may be subject to significant liability should the consumption of any of our products cause injury, illness or death. We depend on our management team, and the loss of their services could have a material, adverse effect on our business. Continued volatility in insurance related expenses and the markets for insurance coverage could have a material adverse effect on us. Certain risks are inherent in providing pharmacy services, and our insurance may not be adequate to cover any claims against us. The outcome of current litigation in which we are involved may have a material adverse effect on our results of operations and cash flow. Risks Related to the Acquisition We are named parties to a number of purported class action complaints in connection with the Acquisition that may have a negative impact on us. We are a company whose equity is not publicly traded and which is effectively controlled by a single stockholder. That stockholder may effect changes to our board of directors, management and business plan, and interests of that stockholder may conflict with the interests of our noteholders. Risks Related to Our Capital Structure Our substantial indebtedness could prevent us from fulfilling our obligations under our indebtedness and may otherwise restrict our activities. Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantial additional indebtedness. This could further exacerbate the risks associated with our existing substantial indebtedness. The agreements governing our indebtedness include restrictive and financial covenants that may limit our operating and financial flexibility.

Full 10-K form ▸

1279172--4/6/2006--DUANE_READE_HOLDINGS_INC