Saks Fifth Avenue 2009 Annual Report Download - page 35

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between the fair value and the principal amount of the 7.5% convertible notes was $22.0 million. This amount was recorded as a debt discount and as an increase
to additional paid-in capital as of the issuance date. The current unamortized discount of $19.4 million is being accreted to interest expense over the remaining
3.8 year period to the maturity date of the notes in December 2013 resulting in an increase in non-cash interest expense in future periods.
The convertible notes were classified within “long-term debt” on the Consolidated Balance Sheet as of January 30, 2010 because the Company can settle
the principal amount of the notes with shares and/or cash.
2.0% Convertible Senior Notes
At January 30, 2010, the Company had $230 million of convertible senior notes outstanding that bear interest at a rate of 2.0% per annum and mature in
2024. The provisions of the convertible notes allow the holder to convert the notes to shares of the Company’s common stock at a conversion rate of 83.5609
shares per one thousand dollars in principal amount of notes (subject to an anti-dilution adjustment). The holder may put the debt back to the Company in 2014
or 2019 and the Company can call the debt on or after March 11, 2011. The Company can settle a conversion of the notes with shares, cash, or a combination
thereof at its discretion. The holders may convert the notes at the following times, among others: if the Company’s share price is greater than 120% of the
applicable conversion price for a certain trading period; if the credit ratings of the notes are below a certain threshold; or upon the occurrence of certain
consolidations, mergers or share exchange transactions involving the Company. At January 30, 2010, the conversion criteria with respect to the credit rating
requirements were met.
The Company used approximately $25 million of the proceeds from the issuances to enter into a convertible note hedge and written call options on its
common stock to reduce the exposure to dilution from the conversion of the notes.
Upon adoption of the provisions of ASC 470 related to accounting for convertible debt instruments that may be settled in cash upon conversion (including
partial cash settlement), the Company estimated the fair value of the liability component, as of the date of issuance, of its 2.0% convertible senior notes assuming
a 6.25% non-convertible borrowing rate to be $158.1 million. The difference between the fair value and the principal amount of the notes was $71.9 million. This
amount was retrospectively recorded as a debt discount and as an increase to additional paid-in capital as of the issuance date. The discount is being accreted to
interest expense over the ten-year period from the issuance date to the first put date of the notes in 2014 resulting in an increase in non-cash interest expense in
prior periods. The current unamortized discount of $35.1 million will be recognized over the remaining 4.1 year period.
The convertible notes were classified within “long-term debt” on the Consolidated Balance Sheet as of January 30, 2010 and January 31, 2009 because the
Company can settle the principal amount of the notes with shares and/or cash.
The Company believes it will have sufficient cash on hand, availability under its revolving credit facility and access to various capital markets to repay
both the senior notes and convertible notes at maturity.
Capital Leases
At January 30, 2010, the Company had $56.4 million in capital leases covering various properties and pieces of equipment. The terms of the capital leases
provide the lessor with a security interest in the asset being leased and require the Company to make periodic lease payments, aggregating between $4 million
and $6 million per year.
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Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Research℠