DSW 2012 Annual Report Download - page 67

F- 27
The fourth quarter purchase of DSW's corporate office headquarters, distribution center and trailer parking lot discussed in
Note 4 was considered a permitted acquisition under the Credit Facility rather than a capital expenditure, and thus there was no
violation of the Credit Facility covenant that limits capital expenditures to $125 million in any fiscal year.
As of February 2, 2013 and January 28, 2012, DSW had no outstanding borrowings under the Credit Facility, had availability
under the facility of $86.0 million and $82.7 million, respectively, and had outstanding letters of credit of $14.0 million and
$17.3 million, respectively.
Total interest expense related to Credit Facility for fiscal 2012, 2011 and 2010 included fees, such as commitment and line of
credit fees, of $0.6 million, $0.6 million and $0.5 million, respectively.
Derivative Instruments
$143.75 Million Premium Income Exchangeable SecuritiesSM (“PIES”)- The 6.625% Mandatorily Exchangeable Notes due
September 15, 2011, or PIES, bore a coupon at an annual rate of 6.625% of the principal amount of $143.75 million, payable
quarterly in arrears, commencing on December 15, 2006 and ending on September 15, 2011. The PIES were mandatorily
exchangeable, on the maturity date, into DSW Class A Common Shares. On the maturity date, each holder of the PIES received
a number of DSW Class A Common Shares per $50.00 principal amount of PIES equal to the “exchange ratio” described in the
RVI prospectus filed with the Securities and Exchange Commission on August 11, 2006.
A subsidiary of DSW assumed, as of the effective time of the Merger, by supplemental indenture and supplemental agreement,
all of RVI’s obligations with respect to the PIES. On September 15, 2011, DSW issued 3.8 million of its Class A Common
shares, without par value, to the holders of the PIES. In connection with this settlement, DSW reclassified $48.0 million from
the conversion feature of short-term debt and $133.8 million from current maturities of long-term debt to paid in capital during
the third quarter of fiscal 2011.
The fair value of the conversion feature at the date of issuance of $11.7 million was equal to the amount of the discount of the
PIES and was amortized into interest expense over the term of the PIES. The discount on the PIES was fully amortized as of
the settlement date. The amount of interest expense recognized and the effective interest rate for the PIES were as follows for
the periods presented:
Fiscal years ended
January 28, 2012 January 29, 2011
(in thousands)
Contractual interest expense $ 5,926 $ 9,523
Amortization of debt discount 1,618 2,375
Total interest expense $ 7,544 $ 11,898
Effective interest rate 8.6% 8.6%
Warrants- The warrants originally issued by RVI on September 26, 2002 and updated on July 5, 2005 in connection with
previously paid credit facilities qualified as derivatives under ASC 815. The fair values of the warrants were recorded on the
balance sheet within current liabilities. As of January 28, 2012, DSW had outstanding warrants for 753,185 DSW Common
Shares, which have all been exercised as of February 2, 2013. In connection with all issuances of warrants, no underwriters
were utilized, and no commissions were paid.
On May 31, 2012, DSW issued 341,222 of its Class B Common Shares, without par value, to the Schottenstein Affiliates in
connection with the exercise of its outstanding warrants. The Common Shares were issued at an exercise price of $10.35 per
share, for an aggregate cash purchase price of $3.5 million, and DSW paid accrued dividends of $0.7 million related to DSW's
special dividend issued on September 30, 2011. In connection with this exercise and in addition to the purchase price, DSW
reclassified $16.8 million from the warrant liability to paid in capital during the second quarter of fiscal 2012.
On March 14, 2012, DSW issued 411,963 of its Class B Common Shares, without par value, to the Schottenstein Affiliates in
connection with the exercise of its outstanding warrant. The Common Shares were issued at an exercise price of $10.35 per
share, for an aggregate cash purchase price of $4.3 million, and DSW paid accrued dividends of $0.8 million related to DSW's
special dividend issued on September 30, 2011. In connection with this exercise and in addition to the purchase price, DSW
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS