Staples 2007 Annual Report Download - page 121

STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
NOTE D Debt and Credit Agreements (Continued)
Credit Agreements: On October 13, 2006, Staples entered into an Amended and Restated Revolving Credit
Agreement (the ‘‘Credit Agreement’’) with Bank of America, N.A and other lending institutions. The Credit Agreement
amended and restated the Revolving Credit Agreement dated as of December 14, 2004, which provided for a maximum
borrowing of $750.0 million and was due to expire in December 2009 (the ‘‘Prior Agreement’’).
The Credit Agreement provides for a maximum borrowing of $750.0 million which, upon approval of the lenders,
Staples may increase to $1.0 billion, and expires on October 13, 2011. Borrowings made pursuant to the Credit
Agreement may be syndicated loans, competitive bid loans, or swing line loans, the combined sum of which may not
exceed the maximum borrowing amount. Amounts borrowed under the Credit Agreement may be borrowed, repaid and
reborrowed from time to time until October 13, 2011. The borrowings under this Credit Agreement are guaranteed by
the same subsidiaries that guarantee the Company’s publicly issued notes (See Note L). At February 2, 2008, no
borrowings were outstanding under this Credit Agreement; however, $71.6 million of open letters of credit were
outstanding, reducing the available credit under the Credit Agreement from $750.0 million to $678.4 million.
Borrowings made pursuant to the Credit Agreement as syndicated loans will bear interest, payable quarterly or, if
earlier, at the end of any interest period, at either (a) the base rate, described in the Credit Agreement as 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 Staples’ credit rating and fixed charge coverage ratio.
Borrowings made as competitive bid loans bear the competitive bid rate as specified in the applicable competitive bid.
Swing line loans bear interest that is the lesser of the base rate or the swing line rate as quoted by the administrative
agent under the terms of the Credit Agreement. Under the Credit Agreement, Staples agrees to pay a facility fee,
payable quarterly, at rates that range from 0.060% to 0.125% depending on the Company’s credit rating and fixed charge
coverage ratio, and when applicable, a utilization fee.
Staples had $114.9 million available under various lines of credit, which had no outstanding balance at February 2,
2008, with $0.9 million of letters of credit issued under the facilities.
NOTE E Derivative Instruments and Hedging Activities
Staples uses interest rate swaps to turn fixed rate debt into variable rate debt and currency swaps 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 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 $200.0 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
termination of the swaps, Staples realized a gain of $18.0 million, which was amortized over the remaining term of the
underlying hedged debt instrument, as an adjustment to interest expense. Simultaneous with the termination of these
interest rate swaps, Staples entered into another $200.0 million of interest rate swaps whereby Staples was entitled to
receive semi-annual interest payments at a fixed rate of 7.125% and was obligated to make semi-annual interest
payments at a floating rate based on the LIBOR. These swap agreements were designated as fair value hedges of the
Senior Notes and terminated on August 15, 2007. Upon the termination of these swap agreements, Staples settled
accrued interest in the amount of $0.1 million, which was included in interest expense.
On January 8, 2003, Staples entered into an interest rate swap, for an aggregate notional amount of $325.0 million,
designed to convert Staples’ Notes into a variable rate obligation. The swap agreement, scheduled to terminate on
October 1, 2012, is designated as a fair value hedge of the Notes. Under the interest rate swap agreement, Staples is
entitled to receive semi-annual interest payments at a fixed rate of 7.375% and is required to make semi-annual interest
payments at a floating rate equal to the 6 month LIBOR plus 3.088%. The interest rate swap agreement is being
accounted for as a fair value hedge and the differential to be paid or received on the interest rate swap agreement is
accrued and recognized as an adjustment to interest expense over the life of the agreements. At February 2, 2008, the
interest rate swap agreement had a fair value gain of $9.3 million, which was included in other assets.
Foreign Currency Swaps: During fiscal year 2000, Staples entered into a currency swap, for an aggregate notional
amount of $200.0 million. Staples, upon maturity of the agreement, was entitled to receive $200.0 million and was
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