Redbox 2011 Annual Report Download - page 74

The New Credit Facility contains standard negative covenants and restrictions on actions including, without
limitation, restrictions on indebtedness, liens, fundamental changes or dispositions of our assets, payments of
dividends, capital expenditures, investments, and mergers, dispositions and acquisitions, among other
restrictions. In addition, the New Credit Facility requires that we meet certain financial covenants, ratios and
tests, including maintaining a maximum consolidated net leverage ratio and a minimum interest coverage ratio,
as defined in the New Credit Facility. As of December 31, 2011, we were in compliance with the covenants of
the New Credit Facility.
Convertible Debt
The aggregate outstanding principal of our 4.0% Convertible Senior Notes (the “Notes”) is $200.0 million. The
Notes bear interest at a fixed rate of 4% per annum, payable semi-annually in arrears on each March 1 and
September 1, and mature on September 1, 2014. The effective interest rate at issuance was 8.5%. As of
December 31, 2011, we were in compliance with all covenants.
The Notes become convertible (the “Conversion Event”) when the closing price of our common stock exceeds
$52.38, 130% of the Notes’ conversion price, for more than 20 trading days during the 30 consecutive trading
days prior to each quarter-end date. If the Notes become convertible and should the Note holders elect to convert,
we will be required to pay them up to the full face value of the Notes in cash as well as deliver shares of our
common stock for any excess conversion value. The number of potentially issued shares increases as the market
price of our common stock increases. As of December 31, 2011, the Conversion Event was not met and the Notes
remained classified as a long-term liability on our Consolidated Balance Sheets. In addition, since the Notes were
not convertible at December 31, 2011, the $26.9 million debt conversion feature that was classified as temporary
equity at December 31, 2010 was reclassified to common stock as of December 31, 2011.
The following interest expense was recorded related to the Notes:
Dollars in thousands Year Ended December 31,
2011 2010 2009
Contractual interest expense ................................ $ 8,000 $ 8,000 $2,333
Amortization of debt discount ............................... 6,551 6,037 1,918
Total interest expense related to the Notes ................. $14,551 $14,037 $4,251
The remaining unamortized debt discount is expected to be recognized as non-cash interest expense as follows
(in thousands):
Year
Non-cash
Interest
Expense
2012 ............................................................. $ 7,108
2013 ............................................................. 7,712
2014 ............................................................. 5,483
Total unamortized discount ....................................... $20,303
Redbox Rollout Agreement
In November 2006, our Redbox subsidiary and McDonald’s USA entered into a Rollout Purchase, License and
Service Agreement (the “Rollout Agreement”) giving McDonald’s USA and its franchisees and franchise
marketing cooperatives the right to purchase DVD rental kiosks to be located at selected McDonald’s restaurant
sites for which Redbox subsequently received proceeds. The proceeds under the Rollout Agreement are classified
as debt and the interest rate is based on similar rates that Redbox has with its kiosk sale-leaseback transactions.
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