The $200 million additional line of credit
The funny thing, is that it is NOT in cash, it is a line of credit to use to issue letters of credit.
With most business situations that would not really matter, since the line of credit would be used to pay for more inventory that would be used to generate sales and profits.
Here, what real difference does it make when sales are in decline? It is just adding another cost to their payables. Instead of getting product with no interest expenses, now there is going to be interest on another $200 million worth of purchases at a time. Every time the line rolls over with a new set of $200 million, there will probably be 0.5% to 1.5% in fees and interest for the letters of credit, so it the line rolls over 10 times per year, fees and expenses could go up as much as $30 million.
Of course, with the amount of money they lose every quarter, losing another five to ten million per quarter will not even be noticed or make much of a difference.
I still find it amazing that 'they had it all' in the late 1970s/early 1980s and just seem to have lost everything on what to do or the future.
Louis J. Desy Jr.
