Redbox 2004 Annual Report Download - page 50

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –(Continued)
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
46
million had been reduced to $207.9 million due to $42.1 million of principal payments made during 2004. Fees for this
facility were $5.7 million which are being amortized over the life of the revolving line of credit and the term loan which are 5
years and 7 years, respectively. The annual estimated amortization expense of these fees will be approximately $800,000 per
year through 2008, $650,000 in 2009, $500,000 in 2010 and $250,000 in 2011. Loans made pursuant to the credit agreement
are secured by a first security interest in substantially all of our assets and the assets of our subsidiaries, as well as a pledge of
our subsidiaries’ capital stock. The credit facility matures on July 7, 2011. All indebtedness from our previous credit facility
totaling $7.8 million was repaid on July 7, 2004.
Advances under this credit facility may be made as either base rate loans (the higher of the Prime Rate or Federal
Funds Effective Rate) or LIBOR rate loans at our election. Applicable interest rates are based upon either the LIBOR or base
rate plus an applicable margin dependent upon a consolidated leverage ratio of outstanding indebtedness to EBITDA (to be
calculated in accordance with the terms specified in the credit agreement). Initially, interest rates payable upon advances were
based upon either an initial rate of LIBOR plus 225 basis points or the base rate plus 125 basis points. At December 31, 2004,
our interest rate on this facility was 4.29%. On January 7, 2005, due to changes in the LIBOR rate, our interest rate has been
adjusted to 4.84%. Interest payments are paid quarterly.
The credit facility contains standard negative covenants and restrictions on actions by us including, without limitation,
restrictions on indebtedness, liens, fundamental changes or dispositions of our assets, payments of dividends or common
stock repurchases, capital expenditures, foreign investments, acquisitions, sale and leaseback transactions and swap
agreements, among other restrictions. In addition, the credit agreement requires that we meet certain financial covenants,
ratios and tests, including maintaining a maximum consolidated leverage ratio and a minimum interest coverage ratio, as
defined in the agreement. As of December 31, 2004, we were in compliance with our covenants and restrictions.
Quarterly principal payments on the term loan totaling $0.5 million will end March 31, 2011. The remaining principal
balance of $194.8 million is due July 7, 2011, the maturity date of the facility. Commitment fees on the unused portion of the
facility, initially equal to 50 basis points, may vary and are based on our consolidated leverage ratio.
Principal payments: As of December 31, 2004, scheduled principal payments on our long-term debt are as follows:
(in thousands)
2005 ................................................................................................
...................
$ 2,089
2006 ................................................................................................
...................
2,089
2007 ................................................................................................
...................
2,089
2008 ................................................................................................
...................
2,089
2009 ................................................................................................
...................
2,089
Thereafter................................................................................................
...........
197,463
$ 207,908
Interest Rate Hedge: On September 23, 2004 we purchased an interest rate cap and sold an interest rate floor at zero
net cost, which protects us against certain interest rate fluctuations of the LIBOR rate, on $125.0 million of our variable rate
debt under our credit facility. This interest rate hedging instrument meets the criteria for cash flow hedge accounting in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The effective date of the
interest rate cap and floor is October 7, 2004 and expires in three years on October 9, 2007. The interest rate cap and floor
consists of a LIBOR ceiling of 5.18% and a LIBOR floor that will step up in each of the three years beginning October 7,
2004, 2005 and 2006. The LIBOR floor rates are 1.85%, 2.25% and 2.75% for each of the respective three-year periods.
Under this hedge, we will continue to pay interest at prevailing rates plus any spread, as defined by our credit facility, but
will be reimbursed for any amounts paid on LIBOR in excess of the ceiling. Conversely, we will be required to pay the
financial institution that originated the instrument if LIBOR is less than the respective floor rates.
We have recognized the fair value of the interest rate cap and floor as an asset of $113,411 at December 31, 2004. Any
change in the fair value of the interest rate cap and floor is reported in accumulated other comprehensive income. Because the
critical terms of the interest rate cap and floor and the underlying obligation are the same, there was no ineffectiveness
recorded in the consolidated statements.