Foot Locker 2004 Annual Report Download - page 54

13 Long-Term Debt and Obligations under Capital Leases
In 2001, the Company issued $150 million of subordinated convertible notes due 2008, at an interest rate of 5.50
percent. The notes were convertible into the Company’s common stock at the option of the holder at a conversion price
of $15.806 per share. The Company notified The Bank of New York, as Trustee under the indenture, that it intended to
redeem its entire $150 million outstanding 5.50 percent convertible subordinated notes. Effective June 4, 2004, all of
the convertible subordinated notes were cancelled and approximately 9.5 million new shares of the Company’s common
stock were issued. The Company reclassified the remaining $3 million of unamortized deferred costs related to the original
issuance of the convertible debt to equity as a result of the conversion.
During 2002, the Company purchased and retired $9 million of the $200 million 8.50 percent debentures payable
in 2022. In 2003, the Company purchased and retired an additional $19 million of the $200 million debentures, bringing
the total amount retired to date to $28 million. The Company entered into an interest rate swap agreement in December
2002 to convert $50 million of the 8.50 percent debentures to variable rate debt. The interest rate swap did not have a
significant effect on interest expense in 2002. In 2003, the Company entered into two additional swaps, to convert an
additional $50 million of the 8.50 percent debentures to variable rate debt. The outstanding interest rate swaps during
2003 converted a total of $100 million of the 8.50 percent fixed rate on the debentures to lower variable rates resulting
in a reduction of interest expense of approximately $4 million. During July 2004, the Company entered into an additional
$100 million of interest rate swaps to further reduce the existing $100 million of outstanding swaps to a lower average
rate. The effect of all swaps resulted in a combined reduction in interest expense of $3 million in 2004. As of January 29,
2005, swaps converting a total of $100 million of debentures were outstanding.
The fair value of the interest rate swaps at January 29, 2005 comprised $2 million, which was included in other assets.
The carrying value of the 8.50 percent debentures was increased by $4 million for the swaps that were classified as fair
value hedges and the remaining $2 million of swaps were classified as cash flow hedges, whereby the changes in their
fair value have been included in other comprehensive loss. The fair value of the swaps, included in other liabilities, was
approximately $1 million at January 31, 2004 and the carrying value of the 8.50 percent debentures was decreased by
the corresponding amount.
On May 19, 2004, the Company obtained a 5-year, $175 million amortizing term loan from the bank group
participating in its existing revolving credit facility to finance a portion of the purchase price of the Footaction stores.
The initial interest rate on the LIBOR-based, floating-rate loan was 2.625 percent and was 3.875 percent on January 29,
2005. The loan requires minimum principal payments each May, equal to a percentage of the original principal amount
of 10 percent in years 2005 and 2006, 15 percent in years 2007 and 2008 and 50 percent in year 2009. Closing and upfront
fees totaling approximately $1 million were paid for the term loan and these fees are being amortized using the interest
rate method as determined by the principal repayment schedule.
Following is a summary of long-term debt and obligations under capital leases:
2004 2003
(in millions)
8.50% debentures payable 2022 ........................................... $176 $171
$175 million term loan .................................................... 175 —
5.50% convertible notes .................................................. — 150
Total long-term debt .................................................... 351 321
Obligations under capital leases ........................................... 14 14
365 335
Less: Current portion ................................................... 18 —
$347 $335
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