Rite Aid 2011 Annual Report Download - page 32

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our remaining net federal and state deferred tax assets through an adjustment to our valuation
allowance. This change was primarily due to a decline in actual results from our previous forecast as a
result of the impact of current economic conditions on fiscal 2009 results.
We monitor all available evidence related to our ability to utilize our remaining net deferred tax
assets. We maintained a full valuation allowance of $2,199.3 million and $1,984.5 million against
remaining net deferred tax assets at fiscal year end 2011 and 2010, respectively.
Liquidity and Capital Resources
General
We have three primary sources of liquidity: (i) cash and cash equivalents, (ii) cash provided by
operating activities, and (iii) borrowings under the revolving credit facility under our senior secured
credit facility. Our principal uses of cash are to provide working capital for operations, to service our
obligations to pay interest and principal on debt and to fund capital expenditures.
Credit Facility
Our senior secured credit facility consists of a $1.175 billion revolving credit facility and two term
loans. Borrowings under the revolving credit facility bear interest at a rate per annum between LIBOR
plus 3.25% and LIBOR plus 3.75%, if we choose to make LIBOR borrowings, or between Citibank’s
base rate plus 2.25% and Citibank’s base rate plus 2.75% in each case based upon the amount of
revolver availability as defined in the senior secured credit facility. We are required to pay fees between
0.50% and 0.75% per annum on the daily unused amount of the revolver, depending on the amount of
revolver availability. Amounts drawn under the revolver become due and payable on August 19, 2015,
provided that such maturity date shall instead be April 18, 2014 in the event that on or prior to
April 18, 2014 we do not repay, refinance or otherwise extend the maturity date of our Tranche 2 Term
Loan (as defined below) to a date that is at least 90 days after August 19, 2015 and, in the case of a
repayment or refinancing, we must have at least $500.0 million of availability under the revolver.
Our ability to borrow under the revolver is based upon a specified borrowing base consisting of
accounts receivable, inventory and prescription files. At February 26, 2011, we had $28.0 million
outstanding under the revolver and had letters of credit outstanding against the revolver of
$143.0 million, which resulted in additional borrowing capacity of $1.004 billion.
The credit facility also includes our $1.105 billion senior secured term loan (the ‘‘Tranche 2 Term
Loan’’). The Tranche 2 Term Loan will mature on June 4, 2014 and currently bears interest at a rate
per annum equal to LIBOR plus 1.75%, if we choose to make LIBOR borrowings, or at Citibank’s
base rate plus 0.75%. We must make mandatory prepayments of the Tranche 2 Term Loan with the
proceeds of asset dispositions and casualty events (subject to certain limitations), with a portion of any
excess cash flow generated by us (as defined in the senior secured credit facility) and with the proceeds
of certain issuances of equity and debt (subject to certain exceptions). If at any time there is a shortfall
in our borrowing base under our senior secured credit facility, prepayment of the Tranche 2 Term Loan
may also be required.
As of February 26, 2011, we also had a $342.1 million senior secured term loan (the ‘‘Tranche 3
Term Loan’’) outstanding under our existing senior secured credit facility. On March 3, 2011, we
refinanced the Tranche 3 Term Loan with a $343.0 million senior secured term loan (the ‘‘Tranche 5
Term Loan’’). The Tranche 5 Term Loan matures on March 3, 2018, although the maturity shall instead
be December 1, 2014 in the event that we do not repay or refinance our outstanding 8.625% senior
notes due 2015 prior to that time, or September 16, 2015, in the event that we do not repay or
refinance our outstanding 9.375% senior notes due 2015 prior to that time. The Tranche 5 Term Loan
bears interest at a rate per annum equal to LIBOR plus 3.25% with a 1.25% LIBOR floor, and is
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