Saks Fifth Avenue 2009 Annual Report Download - page 81

Table of Contents
SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
The 7.5% 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, cash, or a combination thereof at its discretion.
2.0% Convertible Senior Notes
The Company had $230,000 of 2.0% convertible senior notes outstanding at January 30, 2010. The notes bear interest at a rate of 2.0% per annum. The
2.0% Convertible Notes mature in 2024 and in certain circumstances, the provisions of the 2.0% Convertible Notes allow the holder to convert the notes to shares
of the Company’s common stock at a conversion rate of $11.97 per share of common stock (19,219 shares of common stock to be issued upon conversion)
subject to an anti-dilution adjustment. 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.
In connection with the issuance of the 2.0% Convertible Notes, the Company entered into a convertible note hedge and written call options on its common
stock to reduce the Company’s exposure to dilution from the conversion of the 2.0% Convertible Notes. The terms and conditions of the note hedge include:
strike price of $11.97; contract is indexed to 19,219 shares of the Company’s common stock; maturity dates of the hedge instruments range from March 24, 2011
to April 20, 2011. The terms of the written call options include: strike price of $13.81; contract is indexed to 19,219 shares of the Company’s common stock;
maturity date of the written call option instruments is August 2, 2011. These transactions were accounted for as a net reduction of stockholders’ equity of
approximately $25,000 in 2004. The estimated fair value of the convertible note hedge and written call option was $521 and $0 at January 30, 2010 and
January 31, 2009, respectively.
The following tables provide additional information about the Company’s 2.0% Convertible Notes.
January 30,
2010
January 31,
2009
Carrying amount of the equity component (additional paid-in capital) $ 71,852 $ 71,852
Principal amount of the 2.0% Convertible Notes $ 230,000 $ 230,000
Unamortized discount of the liability component $ 35,054 $ 42,297
Net carrying amount of liability component $ 194,946 $ 187,703
2009 2008 2007
Effective interest rate on liability component 6.2% 6.2% 6.2%
Cash interest expense recognized $ 4,600 $ 4,600 $ 4,600
Non-cash interest expense recognized $ 7,243 $ 6,811 $ 6,404
The remaining period over which the unamortized discount will be recognized is 4.1 years. As of January 30, 2010, the if-converted value of the notes did
not exceed its principal amount.
The 2.0% 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, cash or a combination thereof at its discretion.
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Source: SAKS INC, 10-K, March 18, 2010 Powered by Morningstar® Document Research℠