Office Depot 2010 Annual Report Download - page 14

$52.5 million at an effective interest rate of approximately 3.49%. The maximum month end amount outstanding
during 2010 occurred in November at approximately $73.4 million. There were also letters of credit outstanding
under the Facility at year end totaling approximately $119.0 million. An additional $0.2 million of letters of
credit were outstanding under separate agreements. Average borrowings under the Facility in the fourth quarter
of 2010 were approximately $33.9 million at an average interest rate of 3.56%. The maximum monthly average
in 2010 occurred in December at approximately $67.3 million. We did not borrow under the Facility during the
first three quarters of 2010.
In addition to our borrowings under the Facility, we had short-term borrowings of $1.2 million at 2010 year end.
These borrowings primarily represent outstanding balances under various local currency credit facilities for our
international subsidiaries that had an effective interest rate at the end of the year of approximately 6%. The
maximum month end and monthly average amounts were $53.5 million and $52.1 respectively, both occurring in
the month of August. The maximum month end and monthly average amounts includes debt related to two
operating subsidiaries in the International Division that were sold during the fourth quarter of 2010. The majority
of these short-term borrowings represent outstanding balances on uncommitted lines of credit, which do not
contain financial covenants.
The company’s arrangement with a third party financial services company for our private label credit cards is
scheduled for renewal during 2011. We anticipate successfully renewing or replacing this arrangement. See our
discussion under “Off-Balance Sheet Arrangements” for additional information.
Redeemable Preferred Stock
On June 23, 2009, we issued 274,596 shares of 10.00% Series A Redeemable Convertible Participating Perpetual
Preferred Stock (“Series A Preferred Stock”), and 75,404 shares of 10.00% Series B Redeemable Conditional
Convertible Participating Perpetual Preferred Stock (“Series B Preferred Stock” and, together with Series A
Preferred Stock the “Preferred Stock”) for net proceeds of approximately $325 million. Each share of Preferred
Stock has an initial liquidation preference of $1,000 and the conversion rate of $5.00 per common share allow the
two series of preferred stock to be initially convertible into 70 million shares of common stock. The conversion
rate is subject to anti-dilution adjustments. The conversion and voting rights features of these shares were
approved by the shareholders in 2009.
Dividends on the Preferred Stock are payable quarterly and will be paid in-kind or, in cash, only to the extent that
the company has funds legally available for such payment and a cash dividend is declared by the company’s
board of directors and allowed by credit facilities. If not paid in cash, an amount equal to the cash dividend due
will be added to the liquidation preference and measured for accounting purposes at fair value. The dividend rate
will be reduced to (a) 7.87% if, at any time after June 23, 2012, the closing price of the company’s common stock
is greater than or equal to $6.62 per share for a period of 20 consecutive trading days, or (b) 5.75% if, at any time
after June 23, 2012, the closing price of the company’s common stock is greater than or equal to $8.50 per share
for a period of 20 consecutive trading days.
The quarterly dividends of $9.2 million were paid in cash on April 1, 2010, July 1, 2010 and October 1, 2010.
The dividend of $9.2 million for the fourth quarter of 2010 was paid in cash on January 3, 2011. Dividends
accrued during 2009 were paid in-kind, with the stated-rate dividend added to the liquidation preference of the
respective Series A and Series B Preferred Stock. For accounting purposes, the company measured the in-kind
dividend at fair value using a binomial simulation model. The increase in fair value over the stated rate was
charged against additional paid-in capital and added to the Preferred Stock carrying value of the Preferred Stock
but provides no additional benefit to the Preferred Stock holders.
After the third anniversary of issuance the Preferred Stock is redeemable, in whole or in part, at the option of the
company, subject to the right of the holder to first convert the Preferred Stock the company proposes to redeem.
The redemption price is initially 107% of the liquidation preference amount and decreases by 1% each year until
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