Sears 2009 Annual Report Download - page 42

fiscal 2009, we agreed, for a fee, to allow one of the lenders in our Amended Credit Agreement to exit its
commitment, which decreased our total borrowing capacity by $65 million. As a result of the amendment and
changes to the facility during the second quarter, our total borrowing capacity increased to $4.1 billion. The fee
we received related to the exit of one of our lenders was recorded as a reduction to interest expense during the
second quarter of fiscal 2009.
The Amended Credit Agreement provides for a bifurcation of the $4.1 billion credit facility into a $2.4
billion tranche maturing on June 22, 2012, bearing an interest rate of the London Interbank Offered Rate
(“LIBOR”) plus 4.00% (the “Extended Tranche”), with a LIBOR floor of 1.75%, and a $1.7 billion tranche
maturing March 24, 2010, bearing an initial interest rate of LIBOR plus 0.875% (the “Existing Tranche”). The
bifurcation into the Extended Tranche provides Holdings and its subsidiaries more than adequate liquidity for
standby letters of credit and working capital needs. The Amended Credit Agreement also gives us the flexibility,
subject to certain terms and conditions, to increase the size of the credit facility or add a term loan tranche to the
Amended Credit Agreement in an aggregate amount of up to $1.0 billion. It imposes various requirements,
including a requirement that, if availability under the credit facility is beneath a certain threshold, the fixed
charge ratio as of the last day of any fiscal quarter be not less than 1.0 to 1.0, a cash dominion requirement if
excess availability on the revolver falls below designated levels, and limitations on our ability to make restricted
payments, including dividends and share repurchases. In connection with the Amended Credit Agreement, the
Company agreed to limit the amount of cash accumulated when borrowings are outstanding under the credit
facility. The Amended Credit Agreement has a $1.5 billion letter of credit sub-limit, is secured by a first lien on
most of our domestic inventory and credit card and pharmacy receivables, and determines availability pursuant to
a borrowing base formula.
At January 30, 2010, we had $119 million of borrowings and $646 million of letters of credit outstanding
under the Amended Credit Agreement. Our availability under the agreement, given total outstanding borrowings
and letters of credit of $765 million, was $3.3 billion at January 30, 2010. The majority of the letters of credit
outstanding are used to provide collateral for our insurance programs.
Orchard Supply Hardware LLC (“OSH LLC”) Credit Agreement
In November 2005, OSH LLC entered into a five-year, $130 million senior secured revolving credit facility
(the “OSH LLC Facility”), which includes a $25 million letter of credit sublimit. The OSH LLC Facility was
amended and extended in January 2010 and, as a result, available capacity was bifurcated into a $100 million
tranche maturing December 2013 and a $20 million tranche maturing December 2011. The OSH LLC Facility
continues to have a $25 million letter of credit sublimit. The OSH LLC Facility is available for OSH LLC’s
general corporate purposes and is secured by a first lien on substantially all of OSH LLC’s non-real estate assets.
Availability under the OSH LLC Facility is determined pursuant to a borrowing base formula based on inventory
and account and credit card receivables, subject to certain limitations. As of January 30, 2010, there were no
borrowings outstanding under the OSH LLC Facility and $8 million in outstanding letters of credit.
Benefit and Pension Plan Obligations
Contributions to our pension plans remain a significant use of our cash on an annual basis. While Sears
Holdings’ pension plan is frozen, and thus associates do not currently earn pension benefits, the company has a
legacy pension obligation for past service performed by Kmart and Sears, Roebuck and Co. associates. During
2009, we contributed $170 million to our domestic pension plan. However, our contributions are expected to
increase in the future as a result of the severe decline in capital markets that occurred in 2008. Based on guidance
issued by the Treasury Department, we now estimate that the contribution will be approximately $275 million in
2010 and $535 million in 2011, though the ultimate amount of pension contributions could be affected by further
changes in the applicable regulation and financial market and investment performance.
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