Rite Aid 2011 Annual Report Download - page 86

Download and view the complete annual report

Please find page 86 of the 2011 Rite Aid annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 26, 2011, February 27, 2010 and February 28, 2009
(In thousands, except per share amounts)
10. Indebtedness and Credit Agreement (Continued)
The senior secured credit facility allows the Company to have outstanding, at any time, up to
$1,500,000 in secured second priority debt and unsecured debt in addition to borrowings under the
senior secured credit facility and existing indebtedness, provided that not in excess of $750,000 of such
secured second priority debt and unsecured debt shall mature or require scheduled payments of
principal prior to three months after June 4, 2014. The senior secured credit facility allows the
Company to incur an unlimited amount of unsecured debt with a maturity beyond three months after
June 4, 2014; however, other debentures limit the amount of unsecured debt that can be incurred if
certain interest coverage levels are not met at the time of incurrence of said debt. The senior secured
facility also allows, so long as the senior secured credit facility is not in default, for the repurchase of
any debt with a maturity on or before June 4, 2014, for the voluntary repurchase of debt with a
maturity after June 4, 2014, and the mandatory repurchase of the Company’s 8.5% convertible notes
due 2015 if the Company maintains availability on the revolving credit facility of at least $100,000.
The senior secured credit facility contains covenants, which place restrictions on the incurrence of
debt beyond the restrictions described above, the payments of dividends, sale of assets, mergers and
acquisitions and the granting of liens. The credit facility has a financial covenant, which is the
maintenance of a fixed charge coverage ratio. The covenant requires that, if availability on the
revolving credit facility is less than $150.0 million, the Company must maintain a minimum fixed charge
coverage ratio of 1.00 to 1.00 for the quarter ending February 26, 2011 and for the three subsequent
quarters. This ratio increases to 1.05 to 1.00 in the last quarter of Fiscal 2012 and remains at that level
for the remaining term of the facility. As of February 26, 2011, the Company was in compliance with
this financial covenant.
The senior secured credit facility provides for events of default including nonpayment,
misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Company
fails to make any required payment on debt having a principal amount in excess of $50,000 or any
event occurs that enables, or which with the giving of notice or the lapse of time would enable, the
holder of such debt to accelerate the maturity or require the repurchase of such debt. The August 2010
amendments to the senior secured credit facility exclude the mandatory repurchase of the 8.5%
convertible notes due 2015 from this event of default.
Substantially all of Rite Aid Corporation’s wholly-owned subsidiaries guarantee the obligations
under the senior secured credit facility. The subsidiary guarantees of the senior secured credit facility;
the 9.75% senior secured notes due 2016 and the 8.00% senior secured notes due 2020 are secured by
a senior lien on, among other things, accounts receivable, inventory and prescription files of the
subsidiary guarantors. Rite Aid Corporation is a holding company with no direct operations and is
dependent upon dividends, distributions and other payments from its subsidiaries to service payments
due under the senior secured credit facility. The Company’s 10.375% senior secured notes due 2016,
the 7.5% senior secured notes due 2017 and the 10.25% senior secured notes due 2019 are guaranteed
by substantially all of the Company’s wholly-owned subsidiaries, which are the same subsidiaries that
guarantee the senior secured credit facility, the 9.75% senior secured notes due 2016 and the 8.00%
senior secured notes due 2020, and are secured on a second priority basis by the same collateral as the
senior secured credit facility, the 9.75% senior secured notes due 2016 and the 8.00% senior secured
86