PLCE » Topics » Debt Service/Liquidity

This excerpt taken from the PLCE 10-Q filed Jun 5, 2009.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the third quarter when inventory is purchased for the back-to-school and holiday selling seasons.  Our primary uses of cash are the financing of new store openings, providing working capital, principally used for inventory purchases, and the servicing of our term loan.

 

As of May 2, 2009, we had no borrowings under our credit facility and had $38 million in remaining borrowings under a five year $85 million term loan, which we entered into at the end of the second quarter of fiscal 2008.  Our credit facility provides for borrowings up to the lesser of $200 million or our borrowing base, as defined by the credit facility agreement (see “Credit Facilities” below).  At May 2, 2009, our borrowing base was $150.1 million.  We expect to be able to meet our capital requirements principally by using our cash flows from operations and seasonal borrowings under our credit facility.  During the First Quarter 2009, we paid $47 million of principal balance on the term loan based on our cash flow for fiscal 2008 and as prescribed by the Note Purchase Agreement (as described under “Term Loan” below).  $31.3 million of the total payment was mandatory, while the remaining $15.7 million was made at our option.

 

These excerpts taken from the PLCE 10-K filed Apr 1, 2009.

Debt Service/Liquidity

        Our working capital needs follow a seasonal pattern, peaking during the third quarter when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are the financing of new store openings and providing working capital, principally used for inventory purchases.

        As of January 31, 2009, we had no short-term borrowings under our credit facility and had $85 million in borrowings under a five year term loan which we entered into at the end of the second quarter of fiscal 2008 (the "Note Purchase Agreement"). Concurrent with the term loan, we also replaced our then existing credit facility with the 2008 Credit Agreement (as defined below), which provides for borrowings up to $200 million, to increase our liquidity. We expect to be able to meet our capital requirements principally by using the proceeds from our term loan, cash flows from operations and seasonal borrowings under our credit facility.

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        During Fiscal 2008, we paid approximately $44.0 million of costs to wind down the Disney Store business. These costs include the forgiveness of all pre- and post- petition claims against the Hoop estate, including intercompany charges for shared services of approximately $23.6 million, a cash capital contribution of approximately $8.3 million, severance and other employee costs for our employees servicing Hoop Entities of approximately $6.6 million, and legal and other costs of approximately $5.6 million. As of January 31, 2009, we have remaining accruals of $4.1 million for severance, legal and other costs. As the wind down of the Hoop Entities continues, we may incur additional charges or claims.

        Pursuant to the Note Purchase Agreement, we estimate that we are required to make a mandatory prepayment of approximately $30 million in the first half of fiscal 2009.

Debt Service/Liquidity



        Our working capital needs follow a seasonal pattern, peaking during the third quarter when inventory is purchased for the
back-to-school and holiday selling seasons. Our primary uses of cash are the financing of new store openings and providing working capital, principally used for inventory
purchases.



        As
of January 31, 2009, we had no short-term borrowings under our credit facility and had $85 million in borrowings under a five year term loan which we entered
into at the end of the second quarter of fiscal 2008 (the "Note Purchase Agreement"). Concurrent with the term loan, we also replaced our then existing credit facility with the 2008 Credit Agreement
(as defined below), which provides for borrowings up to $200 million, to increase our liquidity. We expect to be able to meet our capital requirements principally by using the proceeds from our
term loan, cash flows from operations and seasonal borrowings under our credit facility.



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Table of Contents



        During Fiscal 2008, we paid approximately $44.0 million of costs to wind down the Disney Store business. These costs include the forgiveness of all
pre- and post- petition claims against the Hoop estate, including intercompany charges for shared services of approximately $23.6 million, a cash capital contribution of
approximately $8.3 million, severance and other employee costs for our employees servicing Hoop Entities of approximately $6.6 million, and legal and other costs of approximately
$5.6 million. As of January 31, 2009, we have remaining accruals of $4.1 million for severance, legal and other costs. As the wind down of the Hoop Entities continues, we may
incur additional charges or claims.



        Pursuant
to the Note Purchase Agreement, we estimate that we are required to make a mandatory prepayment of approximately $30 million in the first half of fiscal 2009.




This excerpt taken from the PLCE 10-Q filed Dec 9, 2008.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the third quarter when inventory is purchased for the back-to-school and holiday selling seasons.  Our primary uses of cash are the financing of new store openings and providing working capital, principally used for inventory purchases.  As of November 1, 2008, we had no short-term borrowings under our credit facility and had $85 million in borrowings under a five year term loan which we entered into at the end of the second quarter of fiscal 2008.  Concurrent with the term loan, we also replaced our credit facility, the 2007 Amended Loan Agreement, with the 2008 Credit Agreement (as defined below), which provides for borrowings up to $200 million, to increase our liquidity.  We expect to be able to meet our capital requirements principally by using the proceeds

 

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from our term loan, cash flows from operations and seasonal borrowings under our credit facility.  Of the $50 million that we estimate in costs to wind down the Disney Store business, approximately 90% has been paid during the thirty-nine weeks ended November 1, 2008.  (See “—Estimated Costs to Exit the Disney Store Business” below for additional information regarding these costs).  Under the terms of the Note Purchase Agreement, we are required to make mandatory prepayments if annual cash flows are in excess of defined thresholds for each fiscal year.  This is likely to result in the payment of approximately $30 million in the first half of fiscal 2009.

 

This excerpt taken from the PLCE 10-Q filed Sep 9, 2008.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are the financing of new store openings and providing working capital, principally used for inventory purchases. As of August 2, 2008, we had no short-term borrowings under our credit facility and had $85 million in borrowings under a new five year term loan which we entered into during the Second Quarter 2008. During the Second Quarter 2008, we also replaced our credit facility, the 2007 Amended Loan Agreement, with the 2008 Credit Agreement (as defined below), which provides for borrowings up to $200 million, to increase our liquidity. We expect to be able to meet our capital requirements principally by using the proceeds from our term loan, cash flows from operations and seasonal borrowings under our credit facility. During the first half of fiscal 2008, we have conserved our capital resources through lower capital expenditures and the timing of our capital projects which are planned for the second half of the year. Of the $50 million that we estimate in costs to wind down the Disney Store business, approximately eighty percent has been paid during the twenty-six weeks ended August 2, 2008. (See “—Estimated Costs to Exit the Disney Store Business” below for additional information regarding these costs). Under the terms of the Note Purchase Agreement, we are required to make mandatory prepayments if annual cash flows are in excess of defined thresholds for each fiscal year. This is likely to result in the payment of approximately $30 million in the first half of fiscal 2009.

 

This excerpt taken from the PLCE 8-K filed Aug 6, 2008.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Historically, our primary uses of cash were the financing of new store openings and providing working capital, principally used for inventory purchases. In prior years, we have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities. Throughout most of fiscal 2007, our cash reserves were held outside of the United States. During the fourth quarter of fiscal 2007, we repatriated $45 million from our Hong Kong subsidiary to be available for additional working capital needs that we anticipated might be needed in connection with our exit from the Disney Store business. Our fiscal 2008 working capital needs are expected to include exit costs of approximately $50 million to wind down the operations of the Disney Store business (see “—Estimated Costs to Exit the Disney Store Business” below for additional information regarding these costs).

 

As of February 2, 2008, we had short-term borrowings of $89.0 million. Our ability to meet our capital requirements in fiscal 2008 depends on our ability to generate cash flows from operations and our borrowings under our credit facilities. During fiscal 2008, we will focus on conserving our capital resources, particularly during the second quarter of 2008 when our revenues are lowest and we are building inventory to support the back-to-school season. We plan to accomplish this by achieving our operating plan, through lower inventory purchases, lower capital expenditures and our workforce reductions. Additionally, the timing of most of our capital expenditure projects is planned for the second half of the year. We also actively pursued additional debt financing and planned to amend our credit facility to strengthen liquidity. We depend on generating sufficient cash flow and having access to additional liquidity sources to fund our ongoing operations, the Disney Store business exit costs, capital expenditures, and debt repayment.

 

This excerpt taken from the PLCE 10-Q filed Jun 12, 2008.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Historically, our primary uses of cash were the financing of new store openings and providing working capital, principally used for inventory purchases. In prior years, we have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities. We currently anticipate our working capital needs to wind down the Disney Store business will approximate $50 million, of which approximately two-thirds have been made in the thirteen weeks ended May 3, 2008. (See “—Estimated Costs to Exit the Disney Store Business” below for additional information regarding these costs).

 

As of May 3, 2008, we had short-term borrowings of $27.9 million. Our ability to meet our capital requirements in fiscal 2008 will depend on our ability to generate cash flows from operations and our borrowings under our credit facilities. During fiscal 2008, we will be required to conserve our capital resources, particularly during the second quarter of 2008 when our revenues are

 

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lowest and we are building inventory to support the back-to-school season. We plan to accomplish this by achieving our operating plan, through lower inventory purchases, lower capital expenditures and our workforce reductions. Additionally, the timing of most of our capital expenditure projects is planned for the second half of the year. We are also actively pursuing additional debt financing to strengthen liquidity and also expect to amend our 2007 Amended Loan Agreement. (see “Item 1A.-Risk Factors-We depend on generating sufficient cash flow and having access to additional liquidity sources to fund our ongoing operations, the Disney Store business exit costs, capital expenditures, and debt repayment.”) While we believe that we will be successful in obtaining additional debt financing and amending our credit facility, there is no assurance that we will be able to do so.

 

These excerpts taken from the PLCE 10-K filed Apr 2, 2008.

Debt Service/Liquidity

        Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Historically, our primary uses of cash was the financing of new store openings and providing working capital, principally used for inventory purchases. In prior years, we have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities. Throughout most of fiscal 2007, our cash reserves were held outside of the United States. During the fourth quarter of fiscal 2007, we repatriated $45 million from our Hong Kong subsidiary to be available for additional working capital needs that we anticipate might be incurred in connection with our exit from the Disney Store business. We currently anticipate that, over time, starting in fiscal 2008, our working capital needs will include exit costs estimated to range between $50 million to $100 million to wind down the operations of the Disney Store business (see "—Estimated Costs to Exit the Disney Store Business" below for additional information regarding these costs).

        As of February 2, 2008, we had short-term borrowings of $89.0 million. Our ability to meet our capital requirements in fiscal 2008 will depend on our ability to generate cash flows from operations and our borrowings under our credit facilities. During fiscal 2008, we will be required to conserve our capital resources, particularly during the second quarter of 2008 when our revenues are lowest and we are building inventory to support the back-to-school season. We plan to accomplish this by achieving our operating plan, through lower inventory purchases, lower capital expenditures and our workforce reductions. Additionally, the timing of most of our capital expenditure projects is planned for the second half of the year. We are also actively pursuing additional debt financing to strengthen liquidity. (see "Item 1A.-Risk Factors-We depend on generating sufficient cash flow and having access to additional liquidity sources to fund our ongoing operations, the Disney Store business exit costs, capital expenditures, and debt repayment.") While we believe that we will be successful in obtaining additional debt financing there is no assurance that we will be able to do so.

Debt Service/Liquidity



        Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the
back-to-school and holiday selling seasons. Historically, our primary uses of cash was the financing of new store openings and providing working capital, principally used for
inventory purchases. In prior years, we have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities.
Throughout most of fiscal 2007, our cash reserves were held outside of the United States. During the fourth quarter of fiscal 2007, we repatriated $45 million from our Hong Kong subsidiary to
be available for additional working capital needs that we anticipate might be incurred in connection with our exit from the Disney Store business. We currently anticipate that, over time, starting in
fiscal 2008, our working capital needs will include exit costs estimated to range between $50 million to $100 million to wind down the operations of the Disney Store business (see
"—Estimated Costs to Exit the Disney Store Business" below for additional information regarding these costs).




        As
of February 2, 2008, we had short-term borrowings of $89.0 million. Our ability to meet our capital requirements in fiscal 2008 will depend on our ability to
generate cash flows from operations and our borrowings under our credit facilities. During fiscal 2008, we will be required to conserve our capital resources, particularly during the second quarter of
2008 when our revenues are lowest and we are building inventory to support the back-to-school season. We plan to accomplish this by achieving our operating plan, through lower
inventory purchases, lower capital expenditures and our workforce reductions. Additionally, the timing of most of our capital expenditure projects is planned for the second half of the year. We are
also actively pursuing additional debt financing to strengthen liquidity. (see "Item 1A.-Risk Factors-We depend on generating sufficient cash flow and having access to additional
liquidity sources to fund our ongoing operations, the Disney Store business exit costs, capital expenditures, and debt repayment.") While we
believe that we will be successful in obtaining additional debt financing there is no assurance that we will be able to do so.



This excerpt taken from the PLCE 10-Q filed Dec 13, 2007.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are financing new store openings and providing working capital, principally used for inventory purchases. As of November 3, 2007, we had short-term borrowings of $108.9 million. Our ability to meet our capital requirements will depend on our ability to generate cash flows from operations and borrowings under our credit facilities. Traditionally, we have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities. We believe that this will be sufficient to fund our capital and other cash flow requirements for at least the next 12 months. In addition, we believe we have access to additional sources of debt financing.

 

The terms of the License Agreement and our credit facilities, among other things, restrict the commingling of funds between The Children’s Place and Hoop and limit borrowings by Hoop from The Children’s Place as well as distributions from Hoop to The Children’s Place, other than payment for the allocated costs of shared services. Therefore, we have segregated all cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. This segregation could lead to a liquidity need in one business even while there is adequate liquidity in the other business. We believe that cash flow from operations and availability and borrowings under our amended credit facilities will be adequate to fund the growth needs and operations of each division. During the next 12 months, it is probable that The Children’s Place business will provide additional capital to the Disney Store business for that business to meet its growth objectives or operating commitments (including our obligations under the Refurbishment Amendment). Further, we anticipate that The Children’s Place business might need to provide additional capital to the Disney Stores thereafter to support the Company’s commitment in the Refurbishment Amendment to remodel and maintain the Disney Stores over the next five years. We expect such additional capital would come from available cash on hand or additional borrowings.

 

We entered into a Guaranty and Commitment (the “Guaranty and Commitment”) dated as of November 21, 2004, in favor of Hoop and Disney. As required by the Guaranty and Commitment, we invested $50 million in Hoop concurrently with the consummation of the acquisition and agreed to invest up to an additional $50 million to enable Hoop to comply with its obligations under the License Agreement and otherwise fund Hoop’s operations. The Guaranty and Commitment provides that our additional $50 million additional commitment is subject to increase if certain distributions are made by Hoop to the Children’s Place. To date, we have not invested any portion of the additional $50 million in Hoop. We also agreed in the Guaranty and Commitment to guarantee the payment and performance of Hoop (for its royalty payment and other obligations to Disney), subject to a maximum guaranty liability of $25 million, plus expenses.

 

In connection with our acquisition of the Disney Store business, we entered into a License Agreement under which Hoop has the right to use certain Disney intellectual property in the Disney Store business in exchange for ongoing royalty payments. The License Agreement limits Hoop’s ability to make cash dividends or other distributions. Hoop’s independent directors must approve payment of any dividends or other distributions, other than payments of:

 

·         Amounts due under terms of the tax sharing and intercompany services agreements;

 

·                          Approximately $61.9 million, which represents a portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition); and

 

·                          Certain other dividend payments, subject to satisfaction of certain additional operating conditions and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at Hoop).

 

In the normal course of business, Hoop has reimbursed intercompany services but has not paid any dividends or made other distributions. We do not expect Hoop to pay dividends or reimburse all or a portion of the $61.9 million

 

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described above to the Company during the next 12 months. Hoop’s cash on hand and cash generated from operations will be utilized to finance store remodels and to provide working capital.

 

Under the License Agreement, Hoop may not incur indebtedness or guarantee indebtedness without written approval from TDSF, except in permitted circumstances as outlined by the License Agreement. The License Agreement provides that trade letters of credit to fund inventory purchases are permitted without limitation; borrowings under all term and revolving loans are limited to $35.0 million, with a maximum of $7.5 million for term loan borrowings; and the aggregate amount outstanding under all term and revolving loans must be reduced to $10.0 million or less at least once annually.

 

In June 2007, we amended our credit facilities for both businesses for the purpose of better supporting the seasonality of the Company’s capital needs and reducing the fees associated with our credit facility borrowings.

 

This excerpt taken from the PLCE 10-Q filed Dec 5, 2007.

Debt Service/Liquidity

 

Our working capital requirements follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are financing new store openings and providing working capital, principally used for inventory purchases. As of May 5, 2007, we had no long-term debt obligations or short-term borrowings. Our ability to meet our capital requirements will depend on our ability to generate cash flows from operations.

 

We have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities and we believe that this will be sufficient to fund our capital and other cash flow requirements for at least the next 12 months.

 

The terms of the License Agreement and our credit facilities, among other things, restrict the commingling of funds between The Children’s Place and Hoop, and limit borrowings by Hoop from The Children’s Place as well as distributions from Hoop to The Children’s Place, other than payment for the

 

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allocated costs of shared services. Therefore, we have segregated all cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. This segregation could lead to a liquidity need in one business even while there is adequate liquidity in the other business. We believe that cash flow from operations and availability and borrowings under our amended credit facilities will be adequate to fund the growth needs and operations of each division. During the next 12 months, it is probable that The Children’s Place business will provide additional capital to the Disney Store business for that business to meet its growth objectives or operating commitments (including our obligations under the Refurbishment Amendment). Further, we anticipate that The Children’s Place business might need to provide additional capital to the Disney Stores thereafter to support the Company’s commitment in the Refurbishment Amendment to remodel and maintain the Disney Stores over the next five years. We expect such additional capital would come from available cash on hand or additional borrowings.

 

We entered into a Guaranty and Commitment (the “Guaranty and Commitment”) dated as of November 21, 2004, in favor of Hoop and Disney. As required by the Guaranty and Commitment, we invested $50 million in Hoop concurrently with the consummation of the acquisition and agreed to invest up to an additional $50 million to enable Hoop to comply with its obligations under the License Agreement and otherwise fund Hoop’s operations. The Guaranty and Commitment provides that our $50 million additional commitment is subject to increase if certain distributions are made by Hoop to The Children’s Place. To date, we have not invested any portion of the additional $50 million in Hoop. We also agreed in the Guaranty and Commitment to guarantee the payment and performance of Hoop (for its royalty payment and other obligations to Disney), subject to a maximum guaranty liability of $25 million, plus expenses.

 

In connection with our acquisition of the Disney Store business, we entered into a License Agreement under which Hoop has the right to use certain Disney intellectual property in the Disney Store business in exchange for ongoing royalty payments. The License Agreement limits Hoop’s ability to make cash dividends or other distributions. Hoop’s independent directors must approve payment of any dividends or other distributions, other than payments of:

 

         Amounts due under terms of the tax sharing and intercompany services agreements;

 

                          Approximately $61.9 million which represents a portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition); and

 

                          Certain other dividend payments, subject to satisfaction of additional operating conditions and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at Hoop).

 

In the normal course of business, Hoop has reimbursed intercompany services but has not paid any dividends or made other distributions. We do not expect Hoop to pay dividends or reimburse all or a portion of the $61.9 million described above to the Company during the next 12 months. Hoop’s cash on hand and cash generated from operations will be utilized to finance store remodels and provide working capital.

 

Under the License Agreement, Hoop may not incur indebtedness or guarantee indebtedness without written approval from TDSF, except in permitted circumstances as outlined by the License Agreement. The License Agreement provides that trade letters of credit to fund inventory purchases are permitted without limitation; borrowings under all term and revolving loans are limited to $35.0 million, with a maximum of $7.5 million for term loan borrowings; and the aggregate amount outstanding under all term and revolving loans must be reduced to $10.0 million or less at least once annually.

 

This excerpt taken from the PLCE 10-Q filed Dec 5, 2007.

Debt Service/Liquidity

 

Our working capital requirements follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are financing new store openings and providing working capital, principally used for inventory purchases. As of August 4, 2007, we had short-term borrowings of $72.2 million. Our ability to meet our capital requirements will depend on our ability to generate cash flows from operations and borrowings under our credit facilities. Traditionally, we have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities and we believe that this will be sufficient to fund our capital and other cash flow requirements for at least the next 12 months.

 

The terms of the License Agreement and our credit facilities, among other things, restrict the commingling of funds between The Children’s Place and Hoop and limit borrowings by Hoop from The Children’s Place as well as distributions from Hoop to The Children’s Place, other than payment for the allocated costs of shared services. Therefore, we have segregated all cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. This segregation could lead to a liquidity need in one business even while there is adequate liquidity in the other business. We believe that cash flow from operations and availability and borrowings under our amended credit facilities will be adequate to fund the growth needs and operations of each division. During the next 12 months, it is probable that The Children’s Place business will provide additional capital to the Disney Store business for that business to meet its growth objectives or operating commitments (including our obligations under the Refurbishment Amendment). Further, we anticipate that The Children’s Place business might need to provide additional capital to the Disney Stores thereafter to support the Company’s commitment in the Refurbishment Amendment to remodel and maintain the Disney Stores over the next five years. We expect such additional capital would come from available cash on hand or additional borrowings.

 

We entered into a Guaranty and Commitment (the “Guaranty and Commitment”) dated as of November 21, 2004, in favor of Hoop and Disney. As required by the Guaranty and Commitment, we invested $50 million in Hoop concurrently with the consummation of the acquisition and agreed to invest up to an additional $50 million to enable Hoop to comply with its obligations under the License Agreement and otherwise fund Hoop’s operations. The Guaranty and Commitment provides that our additional $50 million additional commitment is subject to increase if certain distributions are made by Hoop to the Children’s Place. To date, we have not invested any portion of the additional $50 million in Hoop. We also agreed in the Guaranty and Commitment to guarantee the payment and performance of Hoop (for its royalty payment and other obligations to Disney), subject to a maximum guaranty liability of $25 million, plus expenses.

 

In connection with our acquisition of the Disney Store business, we entered into a License Agreement under which Hoop has the right to use certain Disney intellectual property in the Disney Store business in exchange for ongoing royalty payments. The License Agreement limits Hoop’s ability to make cash dividends or other distributions. Hoop’s independent directors must approve payment of any dividends or other distributions, other than payments of:

 

        Amounts due under terms of the tax sharing and intercompany services agreements;

 

                       Approximately $61.9 million which represents a portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition); and

 

                       Certain other dividend payments, subject to satisfaction of certain additional operating conditions and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at Hoop).

 

In the normal course of business, Hoop has reimbursed intercompany services but has not paid any dividends or made other distributions. We do not expect Hoop to pay dividends or reimburse all or a portion of the $61.9 million described above to the Company during the next 12 months. Hoop’s cash on hand and cash generated from operations will be utilized to finance store remodels and provide working capital.

 

Under the License Agreement, Hoop may not incur indebtedness or guarantee indebtedness without written approval from TDSF, except in permitted circumstances as outlined by the License Agreement. The License Agreement provides that trade letters of credit to fund inventory purchases are permitted without limitation; borrowings under all term and revolving loans are limited to $35.0 million, with a maximum of $7.5 million for term

 

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loan borrowings; and the aggregate amount outstanding under all term and revolving loans must be reduced to $10.0 million or less at least once annually.

 

This excerpt taken from the PLCE 10-Q filed Jun 6, 2006.

Debt Service/Liquidity

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are financing new store openings and providing for working capital, which principally represent the purchase of inventory. We have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities. As of April 29, 2006, our inventory balance was $215.3 million, up 28% per square foot as compared to the First Quarter 2005 due primarily to the timing of inventory flow this year and a relatively low inventory position last year. As of April 29, 2006, we had no long-term debt obligations or short-term borrowings.

We manage liquidity for The Children’s Place and Disney Stores separately, including cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. The terms of the License Agreement, the Hoop Loan Agreement (as defined below) and the Amended Loan Agreement (as defined below), among other things, restrict the commingling of funds between The Children’s Place and the Hoop Operating Entities, and borrowings and certain distributions from the Hoop Operating Entities to The Children’s Place. Therefore, we have maintained segregation of all cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. This segregation could lead to a liquidity need in one business while there is adequate liquidity in the other business. We believe that cash flow from operations and availability and borrowings under their respective credit facilities will be adequate to fund the growth needs and operations of each division. At this time, we do not foresee a need for The Children’s Place business to provide additional capital to the Disney Store business for that business to meet its growth objectives or operating commitments, nor do we foresee a need for the Disney Store business to make a distribution to its parent, other than normal payment of intercompany operating obligations, in order for The Children’s Place business to meet its growth objectives or operating commitments.

We entered into a Guaranty and Commitment (the “Guaranty and Commitment”) dated as of November 21, 2004, in favor of the Hoop Operating Entities and Disney. As required by the Guaranty and Commitment, we invested $50 million in the Hoop Operating Entities concurrently with the acquisition, and agreed to invest up to an additional $50 million to enable the Hoop Operating Entities to comply with their obligations under the License Agreement and otherwise fund the operations of the Hoop Operating Entities. To date, we have not been required to invest any of this additional $50 million in the Hoop Operating Entities in order to comply with the terms of the License Agreement. We also agreed to guarantee the payment and performance of the Hoop Operating Entities (for their royalty payment and other obligations to Disney), subject to a maximum guaranty liability of $25 million, plus expenses.

In connection with the acquisition of the DSNA Business, we entered into a License Agreement under which the Hoop Operating Entities have the right to use certain Disney intellectual property in the DSNA Business in exchange for ongoing royalty payments. The License Agreement limits the ability of the Hoop Operating Entities to make cash dividends or other distributions. The Hoop Operating Entitites’ independent directors must approve payment of any dividends or other distributions, other than payments of:

·       amounts due under terms of the tax sharing and intercompany services agreements;

·       approximately $61.9 million which represents a portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition); and

·       certain other dividend payments, subject to satisfaction of certain additional operating conditions and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at the Hoop Operating Entities).

In the normal course of business, the Hoop Operating Entities have reimbursed intercompany services but have not paid any dividends or made other distributions. During the fourth quarter of fiscal 2006, we plan to evaluate the Hoop Operating Entities’ ability to reimburse the Company for all or a portion of the $61.9 million described above. We do not expect the Hoop Operating Entities to pay dividends to the Company during the next 12 months. The Hoop Operating Entities cash on hand and cash generated from operations will be utilized to finance store remodels and provide working capital. The License Agreement also restricts the incurrence of indebtedness in excess of certain permitted amounts.

In October 2004, we amended and restated our credit facility (the “Amended Loan Agreement”) with Wells Fargo Retail Finance, LLC (“Wells Fargo”), partly in connection with our acquisition of the DSNA Business. The Amended Loan Agreement

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provides for borrowings up to $130 million (including a sublimit for letters of credit of $100 million). The term of the facility ends on November 1, 2007 with successive one-year renewal options. The amount that could be borrowed under the Amended Loan Agreement depends on our level of inventory and accounts receivable relating to The Children’s Place business.

The Amended Loan Agreement is secured by a first priority security interest in substantially all of our assets, other than assets in Canada and assets owned by our subsidiaries that were formed in connection with the acquisition of the DSNA Business. Amounts outstanding under the Amended Loan Agreement bear interest at a floating rate equal to the prime rate or, at our option, a LIBOR rate plus a pre-determined margin. The LIBOR margin is 1.50% to 3.00%, and the unused line fee under the Amended Loan Agreement is 0.38%. The Amended Loan Agreement also contains covenants, which include limitations on our annual capital expenditures, maintenance of certain levels of excess collateral and a prohibition on the payment of dividends.

As of April 29, 2006, we had no borrowings under our Amended Loan Agreement and had outstanding letters of credit of $64.6 million. Availability as of April 29, 2006 under the Amended Loan Agreement was $58.8 million. The maximum outstanding letters of credit during the thirteen weeks ended April 29, 2006 were $64.8 million.

In connection with our acquisition of the DSNA Business, the domestic Hoop Operating Entity entered into a Loan and Security Agreement (the “Hoop Loan Agreement”) with certain financial institutions and Wells Fargo, as administrative agent, establishing a senior secured credit facility for the Hoop Operating Entities. The Hoop Loan Agreement provides for borrowings up to $100 million (including a sublimit for letters of credit of $90 million), subject to the amount of eligible inventory and accounts receivable of the domestic Hoop Operating Entity. The term of the facility extends until November 1, 2007.

The Hoop Loan Agreement contains various covenants, including limitations on indebtedness, maintenance of certain levels of excess collateral and restrictions on the payment of dividends and payment of any indebtedness. Credit extended under the Hoop Loan Agreement is secured by a first priority security interest in substantially all the assets of Hoop USA. Borrowings and letters of credit under the Hoop Loan Agreement are used by Hoop USA and its subsidiary Hoop Canada for working capital purposes for the DSNA Business. Amounts outstanding under the Hoop Loan Agreement bear interest at a floating rate equal to the prime rate plus a pre-determined margin or, at Hoop Operating Entity’s option, the LIBOR rate plus a pre-determined margin. The prime rate margin is 0.25% and the LIBOR margin is 2.0% or 2.25%, depending on the domestic Hoop Operating Entity’s level of excess availability. The unused line fee is 0.30%.

As of April 29, 2006, we had no borrowings under the Hoop Loan Agreement and had outstanding letters of credit of $23.9 million. Availability as of April 29, 2006 under the Hoop Loan Agreement was $27.1 million. During the thirteen weeks ended April 29, 2006, there were no borrowings under the Hoop Loan Agreement other than letters of credit that cleared after business hours. The maximum outstanding letters of credit during the thirteen weeks ended April 29, 2006 were $27.1 million.

We are not aware of any violations of our covenants, under the Amended Loan Agreement and the Hoop Loan Agreement as of April 29, 2006. Non-compliance with these covenants could result in additional fees, affect our ability to borrow or require us to repay the outstanding balance.

This excerpt taken from the PLCE 10-K filed Apr 12, 2006.

Debt Service/Liquidity

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons. Our primary uses of cash are financing new store openings and providing for working capital, which principally represent the purchase of inventory. We have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities.

We manage liquidity for The Children’s Place and Disney Stores separately, including cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. The terms of the License Agreement, the Hoop Loan Agreement (as defined below) and the Amended Loan Agreement (as defined below), among other things, restrict the commingling of funds between The Children’s Place and the Hoop Operating Entities, and borrowings and certain distributions from the Hoop Operating Entities to The Children’s Place. Therefore, we have maintained segregation of all cash receipts and disbursements, investments, and credit facility borrowings and letter of credit activity. This segregation could lead to a liquidity need in one business while there is adequate liquidity in the other business. We believe that cash flow from operations and availability and borrowings under their respective credit facilities will be adequate to fund the growth needs and operations of each division. At this time, we do not foresee a need for The Children’s Place business to provide additional capital to the Disney Store business for that business to meet its growth objectives or operating commitments, nor do we foresee a need for the Disney Store business to make a distribution to its parent, other than normal payment of intercompany operating obligations, in order for The Children’s Place business to meet its growth objectives or operating commitments.

We entered into a Guaranty and Commitment (the “Guaranty and Commitment”) dated as of November 21, 2004, in favor of the Hoop Operating Entities and Disney. As required by the Guaranty and Commitment, we invested $50 million in the Hoop Operating Entities concurrently with the consummation of the acquisition, and agreed to invest up to an additional $50 million to enable the Hoop Operating Entities to comply with their obligations under the License Agreement and otherwise fund the operations of the Hoop Operating Entities.  To date, we have not been required to invest any of this additional $50 million in the Hoop Operating Entities in order to comply with the terms of the License Agreement. We also agreed to guarantee the payment and performance of the Hoop Operating Entities (for their royalty payment and other obligations to Disney), subject to a maximum guaranty liability of $25 million, plus expenses.

29




In connection with the acquisition of the DSNA Business, some of our subsidiaries and Disney’s subsidiaries entered into a License Agreement under which the Hoop Operating Entities have the right to use certain Disney intellectual property in the DSNA Business in exchange for ongoing royalty payments. The License Agreement limits the ability of the Hoop Operating Entities to make cash dividends or other distributions. The Hoop Operating Entitites’ independent directors must approve payment of any dividends or other distributions, other than payments of:

·       amounts due under terms of the tax sharing and intercompany services agreements;

·       approximately $61.9 million which represents a portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition); and

·       certain other dividend payments, subject to satisfaction of certain additional operating conditions and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at the Hoop Operating Entities).

In the normal course of business, the Hoop Operating Entities have reimbursed intercompany services but have not paid any dividends or made other distributions. During the fourth quarter of fiscal 2006, we plan to evaluate the Hoop Operating Entities’ ability to reimburse the Company for all or a portion of the $61.9 million described above. We do not expect the Hoop Operating Entities to pay dividends to the Company during the next 12 months. The Hoop Operating Entities cash on hand and cash generated from operations will be utilized to finance store remodels and provide working capital. The License Agreement also restricts the incurrence of indebtedness in excess of certain permitted amounts.

As of October 30, 2004, we amended and restated our credit facility (the “Amended Loan Agreement”) with Wells Fargo Retail Finance, LLC, (“Wells Fargo”), partly in connection with our acquisition of the DSNA Business. The Amended Loan Agreement provides for borrowings up to $130 million (including a sublimit for letters of credit of $100 million). The term of the facility ends on November 1, 2007 with successive one-year renewal options. The amount that can be borrowed under the Amended Loan Agreement depends on our levels of inventory and accounts receivable relating to The Children’s Place business.

The Amended Loan Agreement is secured by a first priority security interest in substantially all of our assets, other than assets in Canada and assets owned by our subsidiaries that were formed in connection with the acquisition of the DSNA Business.   Amounts outstanding under the Amended Loan Agreement bear interest at a floating rate equal to the prime rate or, at our option, a LIBOR rate plus a pre-determined margin. The LIBOR margin is 1.50% to 3.00%, and the unused line fee under the Amended Loan Agreement is 0.38%. The Amended Loan Agreement also contains covenants, which include limitations on our annual capital expenditures, maintenance of certain levels of excess collateral and a prohibition on the payment of dividends.

As of January 28, 2006, there were no borrowings under the Amended Loan Agreement as compared to $37.3 million in borrowings as of January 29, 2005. During fiscal 2005, our maximum borrowings under the Amended Loan Agreement were $58.2 million. Availability under the Amended Loan Agreement as of January 28, 2006 was $74.1 million as compared to availability of $15.3 million as of January 29, 2005. Letters of credit outstanding under the Amended Loan Agreement as of January 28, 2006 were $49.2 million as compared with $42.2 million as of January 29, 2005.  The interest rates charged under the Amended Loan Agreement were 7.25% and 5.25% per annum as of January 28, 2006 and January 29, 2005, respectively.

As of November 21, 2004, the domestic Hoop Operating Entity entered into a Loan and Security Agreement (the “Hoop Loan Agreement”) with certain financial institutions and Wells Fargo, as

30




administrative agent, establishing a senior secured credit facility for the Hoop Operating Entities. The Hoop Loan Agreement provides for borrowings up to $100 million (including a sublimit for letters of credit of $90 million), subject to the amount of eligible inventory and accounts receivable of the domestic Hoop Operating Entity. The term of the facility extends until November 21, 2007.

The Hoop Loan Agreement contains various covenants, including limitations on indebtedness, maintenance of certain levels of excess collateral and restrictions on the payment of dividends and indebtedness. Credit extended under the Hoop Loan Agreement is secured by a first priority security interest in substantially all the assets of Hoop USA and Hoop Canada as well as a pledge of a portion of the equity interests in Hoop Canada. Borrowings and letters of credit under the Hoop Loan Agreement are used by Hoop USA and its subsidiary Hoop Canada for working capital purposes for the DSNA Business. Amounts outstanding under the Hoop Loan Agreement bear interest at a floating rate equal to the prime rate plus a pre-determined margin or, at Hoop Operating Entity’s option, the LIBOR rate plus a pre-determined margin. The prime rate margin is 0.25% and the LIBOR margin is 2.0% or 2.25%, depending on the domestic Hoop Operating Entity’s level of excess availability.

As of January 28, 2006 and as of January 29, 2005, we had no borrowings under the Hoop Loan Agreement. Letters of credit outstanding were $25.8 million and $35.4 million as of January 28, 2006 and January 29, 2005, respectively. Availability under the Hoop Loan Agreement was $16.3 million and $4.4 million as of January 28, 2006 and January 29, 2005, respectively. During fiscal 2005, there were no borrowings under the Hoop Loan Agreement other than letters of credit that cleared after business hours. The average loan balance under the Hoop Loan Agreement during fiscal 2005 approximated $435,000. The maximum overnight borrowings during fiscal 2005 were $4.8 million. The interest rate charged under the Hoop Loan Agreement was 7.50% and 5.50% per annum as of January 28, 2006 and January 29, 2005, respectively.

During fiscal 2006, we expect to have seasonal borrowings under the Amended Loan Agreement and the Hoop Loan Agreement. We expect to use both credit facilities to support letters of credit throughout fiscal 2006.

We were in compliance with all of the covenants, as amended, under the Amended Loan Agreement and the Hoop Loan Agreement as of January 28, 2006. Noncompliance with these covenants could result in additional fees, affect our ability to borrow or require us to repay the outstanding balance.

This excerpt taken from the PLCE 10-Q filed Dec 8, 2005.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the third and fourth quarters when inventory is purchased for the back-to-school and holiday selling seasons.  In general, our primary uses of cash are financing new store openings and providing for working capital, which principally represents the purchase of inventory.  We have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities.  As of October 29, 2005, we had no long-term debt obligations.  We manage liquidity for The Children’s Place and Disney Stores separately, including cash receipts, disbursements and credit facilities.

 

We entered into a Guaranty and Commitment (the “Guaranty and Commitment”) dated as of November 21, 2004, in favor of

 

18



 

the Hoop Operating Entities and Disney.  As required by the Guaranty and Commitment, we invested $50 million in the Hoop Operating Entities concurrently with the consummation of the acquisition, and agreed to invest up to an additional $50 million to enable the Hoop Operating Entities to comply with their obligations under the License Agreement and otherwise fund the operations of the Hoop Operating Entities.  To date, we have not been required to invest any of this additional $50 million in the Hoop Operating Entities in order to comply with the terms of the License Agreement.  We also agreed to guarantee the payment and performance of the Hoop Operating Entities (for their royalty payment and other obligations to Disney), subject to a maximum guaranty liability of $25 million, plus expenses.

 

In connection with the acquisition of the DSNA Business, some of our subsidiaries and Disney’s subsidiaries entered into a License Agreement under which the Hoop Operating Entities have the right to use certain Disney intellectual property in the DSNA Business in exchange for ongoing royalty payments.  The License Agreement limits the ability of the Hoop Operating Entities to make cash dividends or other distributions.  The Hoop Operating Entities’ independent directors must approve payment of any dividends or other distributions, other than payments of:

       amounts due under the terms of the tax sharing and intercompany services agreements,

       approximately $61.9 million which represents a portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition), and

       certain other dividend payments, subject to satisfaction of certain additional operating conditions and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at the Hoop Operating Entities).

In the normal course of business, the Hoop Operating Entities have reimbursed intercompany services but have not paid any dividends or made other distributions.  We are currently evaluating the Hoop Operating Entities’ ability to reimburse the Company for all or a portion of the $61.9 million described above. We do not expect the Hoop Operating Entities to pay other dividends to the Company during the next 12 months.  The Hoop Operating Entities cash on hand and cash generated from operations will be utilized to finance store remodels and provide working capital.  The License Agreement also restricts the incurrence of indebtedness in excess of certain permitted amounts.

 

As of October 30, 2004, we amended and restated our credit facility (the “Amended Loan Agreement”) with Wells Fargo Retail Finance, LLC (“Wells Fargo”), partly in connection with our acquisition of the DSNA Business.  The Amended Loan Agreement provides for borrowings up to $130 million (including a sub-limit for letters of credit of $100 million).  The term of the facility ends on November 1, 2007 with successive one-year renewal options.  The amount that could be borrowed under the Amended Loan Agreement depends on our level of inventory and accounts receivable.

 

The Amended Loan Agreement is secured by a first priority security interest in substantially all of our assets, other than assets in Canada and assets owned by our subsidiaries that were formed in connection with the acquisition of the DSNA Business.  Amounts outstanding under the Amended Loan Agreement bear interest at a floating rate equal to the prime rate or, at our option, a LIBOR rate plus a pre-determined spread.  The LIBOR spread is 1.50% to 3.00%.  The unused line fee under the Amended Loan Agreement is 0.38%.

 

On July 29, 2005, we entered into an amendment of our Amended Loan Agreement to provide a temporary overadvance facility under which we had the right to borrow up to $20 million through October 31, 2005 (the “Overadvance Facility”).  The Overadvance Facility expired unused on October 31, 2005.

 

As of October 29, 2005, we had $55.3 million in borrowings under our Amended Loan Agreement and had outstanding letters of credit of $40.8 million.  Availability as of October 29, 2005 under the Amended Loan Agreement was $33.9 million, excluding the $20 million available under the Overadvance Facility.  The maximum borrowings during the thirty-nine weeks ended October 29, 2005 were $55.3 million.  We were in compliance with all of the covenants under the Amended Loan Agreement as of October 29, 2005.  Noncompliance with these covenants could result in additional fees, could affect our ability to borrow or could require us to repay the outstanding balance.

 

In connection with our acquisition of the DSNA Business, the Hoop Operating Entities entered into a Loan and Security Agreement (the “Hoop Loan Agreement”) with certain financial institutions and Wells Fargo, as administrative agent, establishing a senior secured credit facility for the DSNA Business.  The Hoop Loan Agreement provides for borrowings of up to $100 million (including a sub-limit for letters of credit of $90 million), subject to the amount of eligible inventory and accounts receivable of the domestic Hoop Operating Entity.  The term of the facility extends until November 21, 2007.  Amounts outstanding under the Hoop Loan Agreement bear interest at a floating rate equal to the prime rate plus a pre-determined margin or, at Hoop Operating Entities’ option, the LIBOR rate plus a pre-determined margin.  The prime rate margin is 0.25% and the LIBOR margin is 2.0% or 2.25%, depending on the domestic Hoop Operating Entity’s level of excess availability.  The unused line fee is 0.30%.

 

19



 

The Hoop Loan Agreement contains various covenants, including limitations on indebtedness, maintenance of certain levels of excess collateral and restrictions on the payment of dividends and payment of any indebtedness.  Credit extended under the Hoop Loan Agreement is secured by a first priority security interest in substantially all the assets of Hoop Operating Entities as well as a pledge of a portion of the equity interests in the Canada Hoop Operating Entity.  Borrowings and letters of credit under the Hoop Loan Agreement are used by the Hoop Operating Entities for working capital purposes for the Disney Store business.

 

As of October 29, 2005, we had no borrowings under the Hoop Loan Agreement and had outstanding letters of credit of $43.1 million.  Availability under the Hoop Loan Agreement was $18.8 million as of October 29, 2005.  During the thirty-nine weeks ended October 29, 2005, there were no borrowings under the Hoop Loan Agreement other than letters of credit that cleared after business hours.  The average loan balance under the Hoop Loan Agreement during the thirty-nine weeks ended October 29, 2005 was approximately $411,000 and the average interest rate was 6.53%.  The maximum outstanding letters of credit outstanding during the thirty-nine weeks ended October 29, 2005 were $60.4 million.

 

During fiscal 2005, we expect to have no borrowings under the Hoop Loan Agreement and seasonal borrowings under the Amended Loan Agreement.  We expect to use both credit facilities to support letters of credit throughout fiscal 2005.

 

We previously had an $8.2 million credit facility with Toronto Dominion Bank to support our Canadian subsidiary, which operates “The Children’s Place” stores in Canada.  This credit facility expired and we do not plan to replace the facility.

 

During the thirty-nine weeks ended October 29, 2005, letter of credit fees approximated $0.7 million and were included in cost of goods sold.

 

This excerpt taken from the PLCE 10-Q filed Sep 8, 2005.

Debt Service/Liquidity

 

Our working capital needs follow a seasonal pattern, peaking during the second and third quarters when inventory is purchased for the back-to-school and holiday selling seasons.  In general, our primary uses of cash are financing new store openings and providing for working capital, which principally represents the purchase of inventory.  We have been able to meet our cash needs principally by using cash on hand, cash flows from operations and seasonal borrowings under our credit facilities.  As of July 30, 2005, we had no long-term debt obligations.  We manage liquidity for The Children’s Place and Disney Stores separately, including cash receipts, disbursements and credit facilities.

 

In connection with the acquisition of the DSNA Business, subsidiaries of the Company and Disney entered into a license agreement (“License Agreement”) under which the Hoop Operating Entities have the right to use certain Disney intellectual property in the DSNA Business in exchange for ongoing royalty payments.  The License Agreement limits the ability of the Hoop Operating Entities to make cash dividends or other distributions.  The Hoop Operating Entities’ independent directors must approve payment of any dividends or other distributions, other than payments of: amounts due under the terms of tax sharing and intercompany services agreements; approximately $61.5 million to recoup the portion of the purchase price paid by the Company to Disney (limited to cumulative cash flows since the date of the acquisition); and certain other dividend payments, subject to satisfaction of certain additional operating conditions, and limited to 50% of cumulative cash flows up to $90 million, and 90% of cumulative cash flows thereafter (provided that at least $90 million of cash and cash equivalents is maintained at the Hoop Operating Entities).  The License Agreement also restricts the incurrence of indebtedness in excess of certain permitted amounts.

 

17



 

We amended and restated our credit facility (the “Amended Loan Agreement”) with Wells Fargo Retail Finance, LLC (“Wells Fargo”), partly in connection with our acquisition of the DSNA Business as of October 30, 2004.  The Amended Loan Agreement provides for borrowings up to $130 million (including a sub-limit for letters of credit of $100 million).  The term of the facility ends on November 1, 2007 with successive one-year renewal options.  The amount that could be borrowed under the Amended Loan Agreement depends on our level of inventory and accounts receivable.

 

The Amended Loan Agreement is secured by a first priority security interest in substantially all of our assets, other than assets in Canada and assets owned by our subsidiaries that were formed in connection with the acquisition of the DSNA Business.  Amounts outstanding under the Amended Loan Agreement bear interest at a floating rate equal to the prime rate or, at our option, a LIBOR rate plus a pre-determined spread.  The LIBOR spread is 1.50% to 3.00%.  The unused line fee under the Amended Loan Agreement is 0.38%.

 

On July 29, 2005, we entered into an amendment of our Amended Loan Agreement to provide a temporary overadvance facility under which we will have the right to borrow up to $20 million through October 31, 2005 (the “Overadvance Facility”).  Borrowings under the Overadvance Facility will be in addition to advances that are made under the Amended Loan Agreement based upon the amount of our eligible inventory and accounts receivable from time to time.  Interest on any outstanding amounts under the Overadvance Facility will accrue at LIBOR plus 4.0% per annum.  All outstanding amounts under the Overadvance Facility must be paid in full by October 31, 2005.  There were no borrowings under the Overadvance Facility as of July 30, 2005.

 

As of July 30, 2005, we had $23.1 million in borrowings under our Amended Loan Agreement and had outstanding letters of credit of $58.9 million.  Availability as of July 30, 2005 under the Amended Loan Agreement was $29.0 million, excluding the $20 million available under the Overadvance Facility.  The maximum borrowings during the twenty-six weeks ended July 30, 2005 were $37.3 million.  We were in compliance with all of the covenants under the Amended Loan Agreement as of July 30, 2005.  Noncompliance with these covenants could result in additional fees, could affect our ability to borrow or could require us to repay the outstanding balance.

 

In connection with our acquisition of the DSNA Business, the Hoop Operating Entities entered into a Loan and Security Agreement (the “Hoop Loan Agreement”) with certain financial institutions and Wells Fargo, as administrative agent, establishing a senior secured credit facility for the DSNA Business.  The Hoop Loan Agreement provides for borrowings of up to $100 million (including a sub-limit for letters of credit of $90 million), subject to the amount of eligible inventory and accounts receivable of the domestic Hoop Operating Entity.  The term of the facility extends until November 21, 2007.  Amounts outstanding under the Hoop Loan Agreement bear interest at a floating rate equal to the prime rate plus a pre-determined margin or, at Hoop Operating Entities’ option, the LIBOR rate plus a pre-determined margin.  The prime rate margin is 0.25% and the LIBOR margin is 2.0% or 2.25%, depending on the domestic Hoop Operating Entity’s level of excess availability.  The unused line fee is 0.30%.

 

The Hoop Loan Agreement contains various covenants, including limitations on indebtedness, maintenance of certain levels of excess collateral and restrictions on the payment of dividends and payment of any indebtedness.  Credit extended under the Hoop Loan Agreement is secured by a first priority security interest in substantially all the assets of Hoop Operating Entities as well as a pledge of a portion of the equity interests in the Canada Hoop Operating Entity.  Borrowings and letters of credit under the Hoop Loan Agreement are used by the Hoop Operating Entities for working capital purposes for the Disney Store business.

 

As of July 30, 2005, we had no borrowings under the Hoop Loan Agreement and had outstanding letters of credit of $37.2 million.  Availability as of July 30, 2005 under the Hoop Loan Agreement was $1.5 million.  During the twenty-six weeks ended July 30, 2005, there were no borrowings under the Hoop Loan Agreement other than letters of credit that cleared after business hours.  The average balance under the Hoop Loan Agreement during the twenty-six weeks ended July 30, 2005 was approximately $407,000 and the average interest rate was 6.31%.  The maximum outstanding letters of credit outstanding during the twenty-six weeks ended July 30, 2005 were $37.2 million.

 

During fiscal 2005, we expect to have no borrowings under the Hoop Loan Agreement and seasonal borrowings under the Amended Loan Agreement.  We expect to use both credit facilities to support letters of credit throughout fiscal 2005.

 

We have an $8.2 million credit facility with Toronto Dominion Bank to support our Canadian subsidiary, which operates “The Children’s Place” stores in Canada.  Since February 3, 2005, this credit facility has not been secured by a standby letter of credit to permit borrowings.  This credit facility remains in place to support our Canadian subsidiary which operates The Children’s Place stores in Canada, should the need arise.

 

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