Office Depot 2008 Annual Report Download - page 33

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LIQUIDITY AND CAPITAL RESOURCES
Liquidity
At December 27, 2008, we had approximately $156 million in cash and equivalents and another $712 million
available under our asset based revolving credit facility. The current and anticipated future difficult economic
conditions impact our assessment of short-term liquidity, but we consider our resources adequate to satisfy our 2009
cash needs. While much of the loss recorded in 2008 resulted from non-cash charges for asset impairments, we
clearly had lower operating performance as well. We anticipate the global economy will continue to struggle
through 2009, and in response, we have heightened our focus on maximizing operating cash flow and have
significantly reduced our anticipated capital expenditures, including limiting the number of new stores and
remodels. Also, we do not plan to make additional acquisitions or execute any share repurchases in the near term.
We are working to lower our working capital needs and have reduced inventory levels and focused on cash
collections of our accounts receivable balances. During 2008, we completed several sale-leaseback transactions and
expect to complete others in 2009. We are also considering sales of some of our accounts receivable portfolio. These
possible sales, together with projected cash benefits from actions taken in our fourth quarter business review and
other items, could add approximately $400 million of liquidity during 2009. As discussed below, we have executed
an asset based credit facility that is intended to provide us flexibility needed in these challenging times. Based on
our current assessment of 2009 and the cash flow options available to us, we believe we have sufficient liquidity to
withstand the anticipated continuation of difficult economic conditions.
We hold cash throughout our service areas, but we principally manage our cash through regional headquarters in
North America and Europe. We may move cash between those regions from time to time through short-term
transactions and have used these cash transfers at the end of fiscal quarterly periods to pay down borrowings
outstanding under our credit facilities. Although such transfers and debt repayments took place at the end of 2006
and each of the first three quarters of 2007, we completed a non-taxable distribution to the U.S. in the amount of
$220 million during the fourth quarter of 2007, thereby permanently repatriating this cash. Additional distributions,
including distributions of foreign earnings or changes in long-term arrangements could result in significant
additional U.S. tax payments and income tax expense. Currently, there are no plans to change our expectation of
foreign earnings reinvestment or the long-term nature of our intercompany arrangements, though accounting impacts
of any change in these classifications would be recognized in the period of the change.
On September 26, 2008, the company entered into a Credit Agreement (the “Agreement”) with a group of lenders,
which provides for an asset based, multi-currency revolving credit facility (the “Facility”) of up to $1.25 billion. The
amount that can be drawn on the Facility at any given time is determined based on percentages of certain accounts
receivable, inventory and credit card receivables (the “Borrowing Base”). At December 27, 2008, the company was
eligible to borrow approximately $1.0 billion of the Facility. In February 2009, that borrowing base was lowered by
$75 million by the Administrative Agent, pending completion of asset base appraisals. The Facility includes a sub-
facility of up to $250 million which is available to certain of the company’s European subsidiaries (the “European
Borrowers”). Certain of the company’s domestic subsidiaries (the “Domestic Guarantors”) guaranty the obligations
under the Facility. The Agreement also provides for a letter of credit sub-facility of up to $400 million. All loans
borrowed under the Agreement may be borrowed, repaid and reborrowed from time to time until September 26,
2013 (or, in the event that the company’s existing 6.25% Senior Notes are not repaid, then February 15, 2013), on
which date the Facility matures.
All amounts borrowed under the Facility, as well as the obligations of the Domestic Guarantors, are secured by a
lien on the company’s and such Domestic Guarantors’ accounts receivables, inventory, cash and deposit accounts.
All amounts borrowed by the European Borrowers under the Facility are secured by a lien on such European
Borrowers’ accounts receivable, inventory, cash and deposit accounts, as well as certain other assets. At the
company’s option, borrowings made pursuant to the Agreement bear interest at either, (i) the alternate base rate
(defined as the higher of the Prime Rate (as announced by the Agent) and the Federal Funds Rate plus 1/2 of 1%) or
(ii) the Adjusted LIBOR Rate (defined as the LIBOR Rate as adjusted for statutory revenues) plus, in either case, a
certain margin based on the aggregate average availability under the Facility. The Agreement also contains
representations, warranties, fees, affirmative and negative covenants, and default provisions. The Facility includes
limitations in certain circumstances on acquisitions, dispositions, share repurchases and the payment of dividends.
The dividend restrictions are based on the then-current and proforma fixed charge coverage ratio and borrowing