DSW 2013 Annual Report Download - page 67

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As of February 1, 2014 and February 2, 2013, DSW had no outstanding borrowings under the Credit Facility, had availability under the facility of $49.4
million and $86.0 million, respectively, and had outstanding letters of credit of $0.6 million and $14.0 million, respectively.
Total interest expense related to the Credit Facility for fiscal 2013, 2012 and 2011 included fees, such as commitment and line of credit fees, of $0.3 million,
$0.6 million and $0.6 million, respectively.
DSW $50 Million Letter of Credit Agreement- Also on August 2, 2013, DSW entered into a letter of credit agreement (the “Letter of Credit Agreement”). The
Letter of Credit Agreement provides for the issuance of letters of credit up to $50 million, with a term of five years that will expire on August 2, 2018. The
facility for the issuance of letters of credit is secured by a cash collateral account containing cash in an amount equal to 103% of the face amount of any letter
of credit extension (105% for extensions denominated in foreign currency) and is used for general corporate purposes. The Letter of Credit Agreement requires
compliance with conditions precedent that must be satisfied prior to issuing any letter of credit or extension. In addition, the Letter of Credit Agreement contains
restrictive covenants relating to DSW's management and the operation of DSW's business. These covenants, among other things, limit or restrict DSW's
ability to grant liens on its assets, limit its ability to incur additional indebtedness, limit its ability to enter into transactions with affiliates and limit its ability
to merge or consolidate with another entity. An event of default may cause the applicable interest rate and fees to increase by 2% per annum.
As of February 1, 2014, DSW had $5.6 million in outstanding letters of credit and $6.1 million in restricted cash on deposit as collateral under the Letter of
Credit Agreement. The restricted cash balance is recorded in prepaid expenses and other current assets on the consolidated balance sheets. DSW had no
outstanding letters of credit or restricted cash on deposit under the Letter of Credit Agreement as of February 2, 2013.
Derivative Instruments
$143.75 Million Premium Income Exchangeable Securities SM (“PIES”)- The 6.625% Mandatorily Exchangeable Notes due September 15, 2011, or
PIES, bore a coupon at an annual rate of 6.625% of the principal amount of $143.75 million, payable quarterly in arrears, commencing on December 15,
2006 and ending on September 15, 2011. The PIES were mandatorily exchangeable, on the maturity date, into DSW Class A Common Shares. On the
maturity date, each holder of the PIES received a number of DSW Class A Common Shares per $50.00 principal amount of PIES equal to the “exchange ratio”
described in the RVI prospectus filed with the Securities and Exchange Commission on August 11, 2006.
A subsidiary of DSW assumed, as of the effective time of the Merger, by supplemental indenture and supplemental agreement, all of RVI’s obligations with
respect to the PIES. On September 15, 2011, DSW issued 7.7 million of its Class A Common shares, without par value, to the holders of the PIES. In
connection with this settlement, DSW reclassified $48.0 million from the conversion feature of short-term debt and $133.8 million from current maturities of
long-term debt to paid in capital during the third quarter of fiscal 2011.
The fair value of the conversion feature at the date of issuance of $11.7 million was equal to the amount of the discount of the PIES and was amortized into
interest expense over the term of the PIES. The discount on the PIES was fully amortized as of the settlement date. The amount of interest expense recognized
and the effective interest rate for the PIES were as follows for the period presented:
Fiscal year ended
January 28, 2012
(in thousands)
Contractual interest expense $5,926
Amortization of debt discount 1,618
Total interest expense $ 7,544
Effective interest rate 8.6%
Warrants-The warrants originally issued by RVI on September 26, 2002 and updated on July 5, 2005 in connection with previously paid credit facilities
qualified as derivatives under ASC 815. The fair values of the warrants were recorded on the balance sheet within current liabilities.
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Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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