Kroger 2010 Annual Report Download - page 102
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A-22
we also expect to be able to fund future scheduled principal payments of long-term debt from our cash
flows from operating activities and, if necessary, by issuing additional debt. We believe we have adequate
coverage of our debt covenants to continue to maintain our current debt ratings and to respond effectively
to competitive conditions.
Factors Affecting Liquidity
We can currently borrow on a daily basis approximately $1 billion under our commercial paper
(“CP”) program. At January 29, 2011, we did not have any CP borrowings outstanding. CP borrowings are
backed by our credit facility, and reduce the amount we can borrow under the credit facility. If our short-
term credit ratings fall, the ability to borrow under our current CP program could be adversely affected
for a period of time and increase our interest cost on daily borrowings under our CP program. This could
require us to borrow additional funds under the credit facility, under which we believe we have sufficient
capacity. However, in the event of a ratings decline, we do not anticipate that our borrowing capacity under
our CP program would be any lower than $500 million on a daily basis. Although our ability to borrow
under the credit facility is not affected by our credit rating, the interest cost on borrowings under the credit
facility could be affected by an increase in our credit default swap spread or an increase in our Leverage
Ratio.
Our credit facility also requires the maintenance of a Leverage Ratio and a Fixed Charge Coverage
Ratio (our “financial covenants”). A failure to maintain our financial covenants would impair our ability to
borrow under the credit facility. These financial covenants and ratios are described below:
• OurLeverageRatio(theratioofNetDebttoConsolidatedEBITDA,asdefinedinthecreditfacility)was
1.95 to 1 as of January 29, 2011. If this ratio exceeded 3.50 to 1, we would be in default of our credit
facility and our ability to borrow under the facility would be impaired. In addition, our Applicable
Margin on borrowings is determined by our Leverage Ratio.
• OurFixedChargeCoverageRatio(theratioofConsolidatedEBITDAplusConsolidatedRentalExpense
to Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit
facility) was 4.03 to 1 as of January 29, 2011. If this ratio fell below 1.70 to 1, we would be in default
of our credit facility and our ability to borrow under the facility would be impaired.
Consolidated EBITDA, as defined in our credit facility, includes an adjustment for unusual gains
and losses including our non-cash asset impairment charges related to goodwill in 2010 and 2009. Our
credit agreement is more fully described in Note 5 to the Consolidated Financial Statements. We were in
compliance with our financial covenants at year-end 2010.