Staples 2004 Annual Report Download - page 108

STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE E Debt and Credit Agreements (Continued)
Credit Agreements: On December 14, 2004, Staples entered into a revolving credit facility (the ‘‘Credit Facility’’)
with a syndicate of banks, which provides for a maximum borrowing of $750 million. The Credit Facility terminates on
December 14, 2009. The Credit Facility replaced a $600 million revolving credit facility (the ‘‘Prior Credit Facility’’) that
had been entered into on June 21, 2002 and was scheduled to terminate in June 2006. On December 14, 2004, there were
no borrowings outstanding under the Prior Credit Facility, and approximately $62.4 million of letters of credit issued
under the Prior Credit Facility were transferred to the Credit Facility.
Borrowings made pursuant to the Credit Facility may be syndicated loans, competitive bid loans, or swing line loans.
Syndicated loans bear interest, payable quarterly or, if earlier, at the end of any interest period, at either (a) the base
rate, which is the higher of the annual rate of the lead bank’s prime rate or the federal funds rate plus 0.50%, or (b) the
Eurocurrency rate (a publicly published rate) plus a percentage spread based on our credit rating and fixed charge
coverage ratio; competitive bid loans bear the competitive bid rate as specified in the applicable competitive bid; and
swing line loans bear interest that is the lesser of the base rate or the swing line rate. Under the Credit Facility, we pay a
facility fee, payable quarterly, at rates that range from 0.090% to 0.250% depending on our credit rating and fixed charge
coverage ratio, and when applicable, a utilization fee.
Payments under the Credit Facility are guaranteed by the same subsidiaries that guarantee our publicly issued notes.
The Credit Facility contains customary affirmative and negative covenants for credit facilities of its type. The covenants
require that in the event a Staples subsidiary that is not currently a guarantor under the Credit Facility becomes a
guarantor of any of Staples’ publicly issued notes or bonds, Staples shall cause such subsidiary to become a guarantor
under the Credit Facility. The Credit Facility also contains financial covenants that require us to maintain a minimum
fixed charge coverage ratio of 1.5 and a maximum adjusted funded debt to total capitalization ratio of 0.75. The Credit
Facility provides for customary events of default with corresponding grace periods, including defaults relating to other
indebtedness of at least $50,000,000 in the aggregate and failure to meet the requirement that Staples and its guarantor
subsidiaries collectively have at least $355,000,000 of consolidated EBT (as defined in the Credit Facility). As of
January 29, 2005, no borrowings were outstanding under the Credit Facility, however $71.0 million of letters of credit
were issued under the facility.
On October 4, 2002, the Company entered into a $325 million 364-Day Term Loan Agreement with a group of
commercial banks to finance a portion of the purchase price of the European mail order acquisition. The Term Loan was
repaid in its entirety on May 2, 2003.
Staples has available $50.0 million in uncommitted, short-term bank credit lines, of which no borrowings were
outstanding as of January 29, 2005. In addition, Staples’ European operations have a total of $65.6 million in available
lines of credit, of which no borrowings were outstanding as of January 29, 2005, and Staples’ Canadian operations have
an $8.1 million line of credit, which had no outstanding balance at January 29, 2005, with $0.7 million of letters of credit
issued under the facility.
Euro Notes: Staples issued notes in the aggregate principal amount of 150 million Euros on November 15, 1999
(the ‘‘Euro Notes’’). These notes came due on November 15, 2004 and were repaid in full on this date. Prior to their
repayment, these notes were designated as a foreign currency hedge on the Company’s net investments in Euro
denominated subsidiaries and gains or losses were recorded in the cumulative translation adjustment line in Stockhold-
ers’ Equity.
NOTE F Derivative Instruments and Hedging Activities
Staples uses interest rate swaps to turn fixed rate debt into variable rate debt 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, 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. Upon
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