Rite Aid 2014 Annual Report Download - page 13

revolving credit facility of approximately $1,315.1 million, net of outstanding letters of credit of
$79.9 million. Our earnings were sufficient to cover fixed charges for fiscal 2014 by $233.4 million.
However, our earnings were insufficient to cover fixed charges and preferred stock dividends for fiscal
2013, 2012, 2011 and 2010 by $14.0 million, $412.4 million, $564.8 million and $498.4 million,
respectively.
Our high level of indebtedness will continue to restrict our operations. Among other things, our
indebtedness will:
• limit our flexibility in planning for, or reacting to, changes in the markets in which we compete;
• place us at a competitive disadvantage relative to our competitors with less indebtedness;
• render us more vulnerable to general adverse economic, regulatory and industry conditions; and
• require us to dedicate a substantial portion of our cash flow to service our debt.
Our ability to meet our cash requirements, including our debt service obligations, is dependent
upon our ability to substantially improve our operating performance, which will be subject to general
economic and competitive conditions and to financial, business and other factors, many of which are
beyond our control. We cannot provide any assurance that our business will generate sufficient cash
flow from operations to fund our cash requirements and debt service obligations.
We believe we have adequate sources of liquidity to meet our anticipated requirements for working
capital, debt service and capital expenditures through fiscal 2015 and have no significant debt maturities
prior to February 2018. However, if our operating results, cash flow or capital resources prove
inadequate, or if interest rates rise significantly, we could face liquidity constraints. If we are unable to
service our debt or experience a significant reduction in our liquidity, we could be forced to reduce or
delay planned capital expenditures and other initiatives, sell assets, restructure or refinance our debt or
seek additional equity capital, and we may be unable to take any of these actions on satisfactory terms
or in a timely manner. Further, any of these actions may not be sufficient to allow us to service our
debt obligations or may have an adverse impact on our business. Our existing debt agreements limit
our ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay
our debts or refinance our indebtedness could have a material adverse effect on us.
Borrowings under our senior secured credit facility are based upon variable rates of interest, which could
result in higher expense in the event of increases in interest rates.
As of March 1, 2014, approximately $2.5 billion of our outstanding indebtedness bore interest at a
rate that varies depending upon the London Interbank Offered Rate (‘‘LIBOR’’). Borrowings under
our Second Lien facilities Tranche 1 Term Loan due August 2020 and Tranche 2 Term Loan due June
2021 are subject to a minimum LIBOR floor of 100 basis points. Borrowings under our new Tranche 7
Term Loan due February 2020 (we refinanced our Tranche 6 Term Loan due February 2020 on
March 14, 2014) are subject to a minimum LIBOR floor of 75 basis points. Borrowings under our
senior secured revolving credit facility are most sensitive to LIBOR fluctuations because there is no
floor. If LIBOR rises, the interest rates on outstanding debt will increase. Therefore an increase in
LIBOR would increase our interest payment obligations under those loans and have a negative effect
on our cash flow and financial condition. We currently do not maintain hedging contracts that would
limit our exposure to variable rates of interest.
The covenants in the instruments that govern our current indebtedness may limit our operating and financial
flexibility.
The covenants in the instruments that govern our current indebtedness limit our ability to:
• incur debt and liens;
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