Rite Aid 2012 Annual Report Download - page 41

Cash used in financing activities was $251.7 million in fiscal 2011 and was primarily due to the
refinancing activity that occurred during the second quarter of fiscal 2011, the repurchase of
$93.8 million of the Convertible Notes, other scheduled debt repayments and a small decrease in our
zero balance cash accounts.
Cash provided by financing activities was $397.1 million in fiscal 2010 due to proceeds from
refinancings offset by a reduction in borrowings on our revolving credit facility and the payment of
financing fees related to the refinancings.
Capital Expenditures
During the fifty-three week period ended March 3, 2012, we spent $250.1 million on capital
expenditures, consisting of $94.0 million related to new store construction, store relocation and store
remodel projects, $121.0 million related to technology enhancements, improvements to distribution
centers and other corporate requirements, and $35.1 million related to the purchase of prescription
files from independent pharmacists. We plan on making total capital expenditures of approximately
$300.0 million during fiscal 2013, consisting of approximately 58.3% related to store relocations and
remodels and new store construction, 25.0% related to infrastructure and maintenance requirements
and 16.7% related to prescription file purchases. Management expects that these capital expenditures
will be financed primarily with cash flow from operating activities.
Future Liquidity
We are highly leveraged. Our high level of indebtedness: (i) limits our ability to obtain additional
financing; (ii) limits our flexibility in planning for, or reacting to, changes in our business and the
industry; (iii) places us at a competitive disadvantage relative to our competitors with less debt;
(iv) renders us more vulnerable to general adverse economic and industry conditions; and (v) requires
us to dedicate a substantial portion of our cash flow to service our debt. Based upon our current levels
of operations, we believe that cash flow from operations together with available borrowings under the
senior secured credit facility and other sources of liquidity will be adequate to meet our requirements
for working capital, debt service and capital expenditures at least for the next twelve months. Based on
our liquidity position, which we expect to remain strong throughout the year, we do not expect the
restriction on our credit facility, that could result if we fail to meet the fixed charge covenant in our
senior secured credit facility, to impact our business in the next twelve months. We will continue to
assess our liquidity position and potential sources of supplemental liquidity in light of our operating
performance, and other relevant circumstances. Should we determine, at any time, that it is necessary
to obtain additional short-term liquidity, we will evaluate our alternatives and take appropriate steps to
obtain sufficient additional funds. There can be no assurance that any such supplemental funding, if
sought, could be obtained or if obtained, would be on terms acceptable to us. From time to time, we
may seek deleveraging transactions, including entering into transactions to exchange debt for shares of
common stock, issuance of equity, repurchase outstanding indebtedness, or seek to refinance our
outstanding debt or may otherwise seek transactions to reduce interest expense and extend debt
maturities. Any of these transactions could impact our financial results.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to inventory shrink, impairment of long-lived assets,
revenue recognition, self insurance liabilities, lease exit liabilities, income taxes and litigation. We base
41