Saks Fifth Avenue 2011 Annual Report Download - page 67

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SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
shareholders’ equity of $25,000 in 2004. As of January 28, 2012, both the convertible note hedge and written
call options had expired. As of January 29, 2011, the estimated net fair value of the convertible note hedge and
written call options was $4,901.
The Company estimated the fair value of the liability component of the 2.0% Convertible Notes at the date of
issuance, assuming a 6.25% non-convertible borrowing rate, to be $158,148. The difference between the fair
value and the principal amount of the 2.0% Convertible Notes was $71,852. This amount was recorded as a debt
discount and as an increase to additional paid-in capital as of the issuance date. In accordance with the
authoritative accounting guidance, the debt discount should be amortized over the expected life of a similar
liability that does not have an associated equity component (considering the effects of embedded features
other than the conversion option). Since the holders of the notes have put options in 2014 and 2019, the debt
instrument is accreted to par value using the effective interest method from issuance until the first put date in
2014 resulting in an increase in non-cash interest expense.
The following tables provide additional information about the Company’s 2.0% Convertible Notes.
January 28,
2012
January 29,
2011
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 ...................... $ 19,160 $ 27,352
Net carrying amount of liability component .......................... $ 210,840 $ 202,648
2011 2010 2009
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 ...................... $ 8,192 $ 7,702 $ 7,243
The remaining period over which the unamortized discount will be recognized is 2.1 years. As of January 28,
2012, the if-converted value of the notes did not exceed its principal amount.
The 2.0% Convertible Notes are classified within long-term debt on the Consolidated Balance Sheets as of
January 28, 2012 and January 29, 2011 because the Company can settle the principal amount of the notes with
shares, cash or a combination thereof at its discretion.
Maturities
At January 28, 2012, maturities of long-term debt and capital lease obligations for the next five years and
thereafter are as follows:
Maturities
2012 ........................................................................ $ 7,472
2013 ........................................................................ 130,154
2014 ........................................................................ 7,859
2015 ........................................................................ 6,461
2016 ........................................................................ 6,167
Thereafter ................................................................... 246,932
405,045
Less: unamortized discount at January 28, 2012 ...................................... (29,611)
Total debt .................................................................. $ 375,434
F-22