Saks Fifth Avenue 2010 Annual Report Download - page 70

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
During periods in which availability under the agreement is $87,500 or more, the Company is not subject to
financial covenants. If and when availability under the agreement decreases to less than $87,500, the Company
will be subject to a minimum fixed charge coverage ratio of 1.0 to 1.0. There is no debt rating trigger. As of
January 29, 2011, the Company was not subject to the fixed charge coverage ratio requirement.
The revolving credit agreement permits additional debt in specific categories including the following (each
category being subject to limitations as described in the revolving credit agreement): debt arising from permitted
sale/leaseback transactions; debt to finance purchases of machinery, equipment, real estate and other fixed assets;
debt in connection with permitted acquisitions; and unsecured debt. The agreement also permits other debt
(including permitted sale/leaseback transactions) in an aggregate amount not to exceed $400,000 at any time,
including secured debt, so long as it is a permitted lien as defined by the revolving credit agreement. The
revolving credit agreement also places certain restrictions on, among other things, asset sales, the ability to make
acquisitions and investments, and to pay dividends.
The Company routinely issues stand-by and documentary letters of credit principally related to the funding
of insurance reserves. Outstanding letters of credit reduce availability under the revolving line of credit. During
2010, weighted average letters of credit issued under the credit agreement were $28,980. The highest amount of
letters of credit outstanding under the agreement during 2010 was $34,910. As of January 29, 2011, the Company
had no direct outstanding borrowings and had letters of credit outstanding of $18,879. The credit agreement
contains default provisions that are typical for this type of financing, including a provision that would trigger a
default under the credit agreement if a default were to occur in another debt instrument resulting in the
acceleration of principal of more than $20,000 under that other instrument.
SENIOR NOTES
As of January 29, 2011, the Company had $145,593 of unsecured senior notes outstanding, excluding the
convertible notes, comprised of three separate series having maturities ranging from 2011 to 2019 and interest
rates ranging from 7.00% to 9.88%. The senior notes are guaranteed by all of the subsidiaries that guarantee the
Company’s credit facility and have substantially identical terms except for the maturity dates and interest rates
payable to investors. The notes permit certain sale/leaseback transactions but place certain restrictions around the
use of proceeds generated from a sale/leaseback transaction. The terms of each senior note require all principal to
be repaid at maturity. There are no financial covenants associated with these notes, and there are no debt-rating
triggers.
In May 2010, the Company repurchased $797 of its 7.0% senior notes that mature in December 2013. The
repurchase of these notes resulted in a loss on extinguishment of debt of approximately $4.
In June and July 2009, the Company repurchased $23,013 of its 7.5% senior notes that mature in December
2010. The repurchase of these notes resulted in a gain on extinguishment of debt of $783.
CONVERTIBLE NOTES
7.5% Convertible Notes
The Company issued $120,000 of 7.5% convertible notes in May 2009 (the “7.5% Convertible Notes”). The
7.5% Convertible Notes mature in December 2013 and are convertible, at the option of the holders at any time,
into shares of the Company’s common stock at a conversion rate of $5.54 per share of common stock (21,670
shares of common stock to be issued upon conversion). The Company can settle a conversion of the notes with
shares, cash, or a combination thereof at its discretion.
F-20