Famous Footwear 2011 Annual Report Download - page 36

34 2011 BROWN SHOE COMPANY, INC. FORM 10-K
Total debt obligations increased $51.6 million, or 14.8%, to $399.6 million at the end of 2011 compared to $348.0 million at
the end of last year due to an increase in borrowings under our senior notes and Credit Agreement. Interest expense in 2011
was $26.1 million compared to $19.7 million in 2010 and $20.2 million in 2009.
Credit Agreement
On January 7, 2011, Brown Shoe Company, Inc. and certain of its subsidiaries (the “Loan Parties”) entered into a Third
Amended and Restated Credit Agreement, which was further amended on February 17, 2011 (as so amended, the “Credit
Agreement”). The Credit Agreement matures on January 7, 2016 and provides for a revolving credit facility in an aggregate
amount of up to $530.0 million (e ective February 17, 2011), subject to the calculated borrowing base restrictions, and
provides for an increase at our option by up to $150.0 million from time to time during the term of the Credit Agreement
(the “general purpose accordion feature”) subject to satisfaction of certain conditions and the willingness of existing or new
lenders to assume the increase.
On February 17, 2011, ASG and TBMC, the sole domestic subsidiary of ASG, became borrowers under the Credit Agreement. In
conjunction with the sale of TBMC on October 25, 2011, TBMC ceased to be a borrower under the Credit Agreement. See Note
2 to the consolidated fi nancial statements for further information on the acquisition of ASG and the subsequent sale of TBMC.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing
base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, as defi ned, less
applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a fi rst-priority security
interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on the London Inter-Bank O ered Rate (“LIBOR”) or the prime rate, as
defi ned in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of
excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility
and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits the Company’s ability to incur additional indebtedness, create liens, make investments or
specifi ed payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In
addition, certain additional covenants would be triggered if excess availability were to fall below specifi ed levels, including
fi xed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of (i) 15.0% of the lesser
of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million for three consecutive business days, or an
event of default occurs, the lenders may assume dominion and control over the Company’s cash (a “cash dominion event”)
until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches
of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of
bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security
document supporting the agreement to be in full force and e ect and a change of control event. In addition, if the excess
availability falls below the greater of (i) 12.5% of the lesser of (x) the borrowing base or (y) the total commitments and (ii)
$35.0 million, and the fi xed charge coverage ratio is less than 1.0 to 1.0, we would be in default under the Credit Agreement.
The Credit Agreement also contains certain other covenants and restrictions. We were in compliance with all covenants and
restrictions under the Credit Agreement as of January 28, 2012.
At January 28, 2012, we had $201.0 million in borrowings outstanding and $9.4 million in letters of credit outstanding under
the Credit Agreement. Total additional borrowing availability was $296.7 million at January 28, 2012.
$200 Million Senior Notes Due 2019
On May 11, 2011, we closed on an o ering (the “O ering”) of $200.0 million aggregate principal amount of 7.125% Senior
Notes due 2019 (the “2019 Senior Notes”). We used a portion of the net proceeds to call and redeem our outstanding 8.75%
senior notes due in 2012 (the “2012 Senior Notes”). We used the remaining net proceeds for general corporate purposes,
including repaying amounts outstanding under the Credit Agreement.
The 2019 Senior Notes are guaranteed on a senior unsecured basis by each of our subsidiaries that is an obligor under
the Credit Agreement. Interest on the 2019 Senior Notes is payable on May 15 and November 15 of each year beginning
on November 15, 2011. The 2019 Senior Notes mature on May 15, 2019. Prior to May 15, 2014, we may redeem some or all
of the 2019 Senior Notes at a redemption price equal to the sum of the principal amount of the 2019 Senior Notes to be
redeemed, plus accrued and unpaid interest, plus a “make whole” premium. After May 15, 2014, we may redeem all or a
part of the 2019 Senior Notes at the redemption prices (expressed as a percentage of principal) set forth below plus
accrued and unpaid interest, if redeemed during the 12-month period beginning on May 15 of the years indicated below:
Year Percentage
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.344%
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.563%
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.78 1%
2017 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
In addition, prior to May 15, 2014, we may redeem up to 35% of the 2019 Senior Notes with the proceeds from certain equity
o erings at a redemption price of 107.125% of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued
and unpaid interest thereon, if any, to the redemption date.