Kroger 2012 Annual Report Download - page 82

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terms based on our past experience. $2.0 billion of this debt matures in the first quarter of 2013. In the first
quarter of 2013, we anticipate refinancing this $2.0 billion through cash flows from operating activities and
by issuing $1.0 billion to $1.2 billion of additional senior notes. We also currently do not expect to repurchase
our common shares at the levels we did in 2012. We used our commercial paper program toward the end
of 2012 to fund our common share repurchases, a $250 million (pre-tax) pre-funding of employee benefit
costs at the end of 2012, a $258 million UFCW consolidated pension plan contribution in the fourth quarter
of 2012 and the payment at maturity of $500 of senior notes bearing an interest rate of 5.5%. We also expect
our contributions to the UFCW consolidated pension plan to decrease in future periods. We may use our
commercial paper program to fund debt maturities at the end of 2013 but do not currently expect to use the
program permanently. 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 $2 billion under our commercial paper (“CP”)
program. At February 2, 2013, we had $1.6 billion of 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 Leverage Ratio. As of March 29, 2013, we had $1.1 billion of CP borrowings outstanding. The
decrease as of March 29, 2013, compared to year-end 2012, was due to applying cash from operations against
our year-end CP outstanding borrowings.
Our credit facility 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:
•฀ Our฀Leverage฀Ratio฀(the฀ratio฀of฀Net฀Debt฀to฀Consolidated฀EBITDA,฀as฀defined฀in฀the฀credit฀facility)฀was฀
1.81 to 1 as of February 2, 2013. If this ratio were to exceed 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.
•฀ Our฀Fixed฀Charge฀Coverage฀Ratio฀(the฀ratio฀of฀Consolidated฀EBITDA฀plus฀Consolidated฀Rental฀Expense฀to฀
Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit facility)
was 4.67 to 1 as of February 2, 2013. 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 UFCW consolidated pension plan liability adjustment in 2012. 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 2012.