Office Depot 2009 Annual Report Download - page 34

$218.8 million, or the European availability is below $37.5 million, the company’s cash collections go first to the
agent to satisfy outstanding borrowings. Further, if total availability falls below $187.5 million, a fixed charge
coverage ratio test is required which, based on current forecasts, could effectively eliminate additional borrowing
under the Facility. Any event of default that is not cured within the permitted period, including non-payment of
amounts when due, any debt in excess of $25 million becoming due before the scheduled maturity date, or the
acquisition of more than 40% of the ownership of the company by any person or group, could result in a termination
of the Facility and all amounts outstanding becoming immediately due and payable.
At December 26, 2009, we had approximately $726 million of available credit under our asset based credit
facility (the “Facility”). At December 26, 2009, there were no borrowings outstanding under the Facility and
there were letters of credit outstanding under the Facility totaling approximately $146 million. An additional $0.7
million of letters of credit were outstanding under separate agreements. Average borrowings under the Facility
from December 27, 2008 to June 27, 2009 were approximately $180 million at an average interest rate of 3.92%.
We did not borrow under our asset based credit facility during the second half of 2009.
In addition to our borrowings under the Facility, we had short-term borrowings of $44.1 million. 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 2.35%. The
majority of these short-term borrowings represent outstanding balances on uncommitted lines of credit, which do
not contain financial covenants.
In December 2008, the company’s credit rating was downgraded which provided the counterparty to the
company’s private label credit card program the right to terminate the agreement and require the company to
repurchase the outstanding balance credit card receivables. The company and the counterparty subsequently
amended the agreement to permanently eliminate this provision. The company maintains a $25 million letter of
credit in support of this agreement.
Redeemable Preferred Stock Issuance
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” together 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. In compliance with the rules of the New York Stock Exchange, Office Depot requested shareholder
approval for the conversion and voting rights for these shares. Approval was received at the shareholder meeting
on October 14, 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. The company’s asset based credit facility currently limits the
ability to make such payments. The company may seek modifications to the credit facility to allow for dividends
to be paid in cash. 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 board of directors approved dividends equal to the stated dividend rate on the Preferred Stock for periods
through January 1, 2010. The stated-rate dividend has been added to the liquidation preference of the respective
Series A and Series B Preferred Stock, in lieu of making a cash payment. This $18.1 million increase in
liquidation preference in lieu of a cash payment has no impact on the Consolidated Statements of Cash Flows.
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