Rite Aid 2012 Annual Report Download - page 12

We are highly leveraged. Our substantial indebtedness could limit cash flow available for our operations and
could adversely affect our ability to service debt or obtain additional financing if necessary.
We had, as of March 3, 2012, $6.3 billion of outstanding indebtedness and stockholders’ deficit of
$2.6 billion. We also had additional borrowing capacity under our $1.175 billion senior secured
revolving credit facility of approximately $910.8 million, net of outstanding letters of credit of
$128.2 million. Our earnings were insufficient to cover fixed charges and preferred stock dividends for
fiscal 2012, 2011, 2010, 2009 and 2008 by $412.4 million, $564.8 million, $498.4 million, $2.6 billion and
$340.6 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 2013 and have no significant maturities
prior to June 2014. However, if our operating results, cash flow or capital resources prove inadequate,
or if interest rates rise significantly, we could face substantial liquidity problems and might be required
to dispose of material assets or operations to meet our debt and other obligations or otherwise be
required to delay our planned activities. 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 3, 2012, approximately $1.5 billion of our outstanding indebtedness bore interest at a
rate that varies depending upon the London Interbank Offered Rate (‘‘LIBOR’’). Borrowings under
our Tranche 5 Term Loan due March 2018 are subject to a minimum LIBOR floor of 125 basis points.
Our Tranche 2 Term Loan due June 2014 and 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.
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