Rite Aid 2011 Annual Report Download - page 43

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our future earnings, cash flow and fair values relevant to financial instruments are dependent
upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our major market risk exposure is changing interest rates. Increases in interest rates
would increase our interest expense. We enter into debt obligations to support capital expenditures,
acquisitions, working capital needs and general corporate purposes. Our policy is to manage interest
rates through the use of a combination of variable-rate credit facilities, fixed-rate long-term obligations
and derivative transactions. We currently do not have any derivative transactions outstanding.
The table below provides information about our financial instruments that are sensitive to changes
in interest rates. The table presents principal payments and the related weighted average interest rates
by expected maturity dates as of February 26, 2011.
Fair Value at
February 26,
2012 2013 2014 2015 2016 Thereafter Total 2011
(Dollars in thousands)
Long-term debt, including
current portion, excluding
capital lease obligations
Fixed Rate ............ $5,231 $114 $190,852 $ — $974,188 $3,533,000 $4,703,385 $4,596,011
Average Interest Rate ..... 1.25% 7.00% 6.95% 0.00% 8.93% 8.90% 8.82%
Variable Rate .......... $39,812 $ — $ 3,838 $1,373,088 $28,000 $ — $1,444,738 $1,406,579
Average Interest Rate ..... 2.98% 0.00% 2.92% 2.98% 5.50% 0.00% 3.03%
Our ability to satisfy our interest payment obligations on our outstanding debt will depend largely
on our future performance, which, in turn, is subject to prevailing economic conditions and to financial,
business and other factors beyond our control. If we do not have sufficient cash flow to service our
interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity
financing to satisfy those obligations, our business and results of operations will be materially adversely
affected. We cannot be assured that any replacement borrowing or equity financing could be
successfully completed.
The interest rate on our variable rate borrowings, which include our revolving credit facility and
our Tranche 2 Term loans and Tranche 5 Term loans, are all based on LIBOR. However, the interest
rate on our Tranche 5 Term loans has a LIBOR floor of 125 basis points. If the market rates of interest
for LIBOR changed by 100 basis points as of February 26, 2011, our annual interest expense would
change by approximately $11.1 million.
A change in interest rates generally does not have an impact upon our future earnings and cash
flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is
acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in
interest rates. This effect would be realized in the periods subsequent to the periods when the debt
matures.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and notes thereto are included elsewhere in this report and
are incorporated by reference herein. See Item 15 of Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
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