Staples 2003 Annual Report Download - page 80

STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F Debt and Credit Agreements (Continued)
pursuant to Rule 144A and Regulation S of the Securities Act of 1933, as amended. Net proceeds to the Company were
approximately $319.7 million. The Company used the net proceeds to finance a portion of the European mail order
acquisition. Staples has entered into an interest rate swap to turn the Notes into variable rate obligations (see Note G).
In February, 2003, Staples filed an exchange offer registration statement with the SEC pursuant to which the holders of
these notes may exchange them for publicly tradable notes.
Credit Agreements: On June 21, 2002, Staples entered into a revolving credit facility (the ‘‘New Credit Facility’’)
with a syndicate of banks, which provides for a maximum borrowing of $600 million. The New Credit Facility terminates
in June 2005 and replaced the $350 million revolving credit facility of November 13, 1997 and the $200 million 364-day
revolving credit facility of June 25, 2001, both of which were to expire in 2002. Borrowings made pursuant to the New
Credit Facility bear interest at the lower of (a) the higher of the lead bank’s prime rate or the federal funds rate plus
0.50%, (b) the Eurodollar rate plus a percentage spread based upon certain defined ratios, or (c) a competitive bid rate.
The New Credit Facility contains financial covenants that require Staples to maintain a minimum fixed charge coverage
ratio of 1.5 and a maximum adjusted debt to total capital ratio of 0.75 and an affirmative covenant that requires Staples
to maintain at least $275 million of consolidated EBIT (as defined in the New Credit Facility) for the Company’s
subsidiaries that guarantee the New Credit Facility. As of February 1, 2003, no borrowings were outstanding under the
New Credit Facility, but $46 million of letters of credit were issued against the facility.
On October 4, 2002, the Company entered into a $325 million 364-Day Term Loan Agreement (the ‘‘Term Loan’’)
with a group of commercial banks. The Company used the Term Loan to finance a portion of the purchase price of the
European mail order acquisition. Borrowings under the Term Loan bear interest, at the Company’s option, at either
(a) the higher of the lead bank’s prime rate or the federal funds rate plus 0.50%, or (b) the Eurodollar rate plus a
percentage spread based upon certain defined ratios. The Term Loan’s financial and affirmative covenants are the same
as those contained in the Company’s existing $600 million revolving credit facility. The Term Loan matures on October 3,
2003.
Staples also has available $70.0 million in uncommitted, short-term bank credit lines, of which no borrowings were
outstanding as of February 1, 2003. Staples’ European operations have a total of $69.3 million in available lines of credit
of which no borrowings were outstanding as of February 1, 2003. Staples’ Canadian operations have a $6.5 million line of
credit, which had no outstanding balance at February 1, 2003.
Euro Notes: Staples issued notes in the aggregate principal amount of 150 million Euros on November 15, 1999
(the ‘‘Euro Notes’’). These notes bear interest at a rate of 5.875% per annum and are due on November 15, 2004. These
notes have been designated as a foreign currency hedge on the Company’s net investments in Euro denominated
subsidiaries and gains or losses are recorded in the cumulative translation adjustment line in Stockholders’ Equity. A
foreign currency gain of $6.2 million, less $2.3 million in taxes, has been recorded in the cumulative translation
adjustment line at February 1, 2003. Staples has entered into interest rate swaps to turn the Euro Notes into variable rate
obligations (see Note G).
Floating Rate Notes: On May 24, 2000, Staples issued notes in the aggregate principal amount of $175 million.
These notes came due on November 26, 2001 and were repaid through a combination of cash on hand and borrowings on
existing credit lines. The notes bore interest at a rate equal to the three month LIBOR plus .85%.
NOTE G Derivative Instruments and Hedging Activities
Staples uses interest rate swaps to turn fixed rate debt into variable rate and currency swaps to fix the cash flows
associated with debt denominated in a foreign currency and to hedge a portion of the value of Staples’ net investment in
Canadian dollar denominated subsidiaries. These derivatives qualify for hedge accounting treatment as the derivatives
have been highly effective in achieving offsetting changes in fair value of the hedged items.
Interest Rate Swaps: During fiscal year 1999, Staples entered into interest rate swaps, for an aggregate notional
amount of $200 million, designed to turn Staples’ fixed rate Senior Notes into a variable rate obligation. On October 23,
2001, Staples terminated these interest rate swaps which were originally scheduled to terminate on August 15, 2007.
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