Radio Shack 2013 Annual Report Download - page 53

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Credit Facility Term Loan Due January 2016: In August
2012 we entered into a term loan agreement for $50.0
million under our 2016 Credit Facility. This term loan was
originally due in January 2016, subject to a term loan
borrowing base, and bore interest at our choice of a bank’s
prime rate plus 3.5% or LIBOR plus 4.5%. This term loan
was repaid in connection with the establishment of our
2018 Credit Agreement and 2018 Term Loan. We
recognized a loss on the extinguishment of this debt in the
amount of $0.9 million, classified as other loss, for
unamortized debt issuance costs.
Credit Facility Term Loan Due September 2017: In
October 2012 we entered into a term loan agreement for
$25.0 million under our 2016 Credit Facility. This term loan
was originally due in September 2017, subject to a term
loan borrowing base, and bore interest at our choice of a
bank’s prime rate plus 3.5% or LIBOR plus 4.5%. This term
loan was repaid in connection with the establishment of our
2018 Credit Agreement and 2018 Term Loan. We
recognized a loss on the extinguishment of this debt in the
amount of $0.6 million, classified as other loss, for
unamortized debt issuance costs.
Term Loan Due September 2017: In September 2012 we
borrowed $100 million under a new term loan credit
agreement (“2017 Term Loan”) with two lenders and Wells
Fargo, N. A., as administrative and collateral agent. The
2017 Term Loan was originally due in September 2017 and
bore interest at a rate of 10.0% plus adjusted LIBOR for a
one, two, or three month interest period, but never less than
11.0%. The 2017 Term Loan was secured on a second
priority basis by the same assets that secured the 2016
Credit Facility and on a first priority basis by substantially all
of our other assets. This term loan was repaid in connection
with the establishment of our 2018 Term Loan. We
recognized a loss on the extinguishment of this debt in the
amount of $7.2 million, classified as other loss, for
prepayment penalties and unamortized debt issuance
costs.
2013 Convertible Notes: In August 2008 we sold $375
million aggregate principal amount of 2.50% convertible
senior notes due August 1, 2013, (the “2013 Convertible
Notes”) in a private offering to qualified institutional buyers.
The 2013 Convertible Notes were issued at par and interest
was payable semiannually, in arrears, on February 1 and
August 1. On August 1, 2013, we repaid the $214.4 million
remaining aggregate principal balance of the 2013
Convertible Notes at their maturity.
Each $1,000 of principal of the 2013 Convertible Notes was
convertible, under certain circumstances into 42.0746
shares of our common stock, which was the equivalent of
$23.77 per share, in 2013, 2012 and 2011. Upon
conversion, we would have paid the holder the cash value
of the applicable number of shares of our common stock,
up to the principal amount of the note. Amounts in excess
of the principal amount, if any (the “excess conversion
value”), would have been paid in cash or in stock, at our
option. The 2013 Convertible Notes were not convertible at
any time during their term.
Prior to their maturity, we repurchased $72.5 million of
aggregate principal amount of 2013 Convertible Notes in
the first six months of 2013. We paid a total of $71.6 million
for these notes, which consisted of the purchase price of
$71.4 million plus $0.2 million in accrued and unpaid
interest, to the holders of the notes. This transaction
resulted in a loss of $0.3 million, which was classified as
other loss on our Consolidated Statements of Income.
In the third quarter of 2012, we repurchased $88.1 million of
aggregate principal amount of the 2013 Convertible Notes.
We paid a total of $84.8 million, which consisted of the
purchase price of $84.6 million for the 2013 Convertible
Notes plus $0.2 million in accrued and unpaid interest, to
the holders of the 2013 Convertible Notes. This transaction
resulted in a loss of $0.6 million classified as other loss on
our Consolidated Statements of Income. At December 31,
2012, there was $286.9 million aggregate principal amount
of 2013 Convertible Notes still outstanding.
In connection with the issuance of the 2013 Convertible
Notes, we entered into separate convertible note hedge
transactions and separate warrant transactions with respect
to our common stock to reduce the potential dilution upon
conversion of the 2013 Convertible Notes (collectively
referred to as the “Call Spread Transactions”). The
convertible note hedges and warrants generally had the
effect of increasing the economic conversion price of the
2013 Convertible Notes to $35.88 per share of our common
stock, representing a 100% conversion premium based on
the closing price of our common stock on August 12, 2008.
See Note 6 - “Stockholders’ Equity,” for more information
on the Call Spread Transactions.
Because the principal amount of the 2013 Convertible
Notes would have been settled in cash upon conversion,
the 2013 Convertible Notes would have only affected
diluted earnings per share when the price of our common
stock exceeded the conversion price.
When accounting for the 2013 Convertible Notes, we
applied accounting guidance related to the accounting for
convertible debt instruments that may be settled in cash
upon conversion. This guidance required us to account
separately for the liability and equity components of these
notes in a manner that reflected our nonconvertible debt
borrowing rate when interest cost was recognized. This
guidance requires bifurcation of a component of the debt,
classification of that component in equity, and then accretion
of the resulting discount on the debt as part of interest
expense being reflected in the income statement.
Accordingly, we recorded an adjustment to reduce the
carrying value of our 2013 Convertible Notes by $73.0
million and recorded this amount in stockholders’ equity.
This adjustment was based on the calculated fair value of a
similar debt instrument in August 2008 (at issuance) that
did not have an associated equity component. The annual
interest rate calculated for a similar debt instrument in
August 2008 was 7.6%. The resulting discount was
amortized to interest expense over the term of these notes.
The carrying value of the 2013 Convertible Notes was
$278.7 million and $346.9 million at December 31, 2012
and 2011, respectively. We recognized interest expense of
$3.5 million, $8.7 million, and $9.4 million in 2013, 2012
and 2011, respectively, related to the stated 2.50% coupon.
We recognized non-cash interest expense of $6.9 million,