Supercuts 2012 Annual Report Download - page 120

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. FINANCING ARRANGEMENTS (Continued)
convertible senior note agreement. On or after April 15, 2014, holders may convert each of their notes at their option at any time prior to the
maturity date for the notes.
The Company has the choice of net-cash settlement, settlement in its own shares or a combination thereof and concluded the conversion
option is indexed to its own stock. As a result, the Company allocated $24.7 million of the $172.5 million principal amount of the convertible
senior notes to equity, which resulted in a $24.7 million debt discount. The allocation was based on measuring the fair value of the convertible
senior notes using a discounted cash flow analysis. The discount rate was based on an estimated credit rating for the Company. The estimated
fair value of the convertible senior notes was $147.8 million, and the resulting $24.7 million debt discount will be amortized over the period the
convertible senior notes are expected to be outstanding, which is five years, as additional non-cash interest expense. The combined debt
discount amortization and the contractual interest coupon resulted in an effective interest rate on the convertible debt of 8.9 percent.
The following table provides equity and debt information for the convertible senior notes:
The following table provides interest rate and interest expense amounts related to the convertible senior notes:
Revolving Credit Facility
On June 30, 2011, the Company amended its revolving credit agreement, which now provides for a $400.0 million senior unsecured five-
year revolving credit facility. The revolving credit facility has rates tied to a LIBOR credit spread and a quarterly facility fee on the average
daily amount of the facility (whether used or unused). Both the LIBOR credit spread and the facility fee are based on the Company's debt to
EBITDA ratio at the end of each fiscal quarter. The amendments included increasing the Company's minimum net worth covenant from $800.0
to $850.0 million, and amending or adding certain definitions, including Change in Law, Defaulting Lender, EBITDA, Fronting Exposure,
Replacement Lender, and Accounting Principles. In addition, the Company may request an increase in revolving credit commitments under the
facility of up to $200.0 million under certain circumstances. Under the new agreement, indebtedness related to Capital Leases is limited to
$50.0 million, and Restricted Payments are tiered based on Debt to EBITDA. Events of default under the Credit
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Convertible Senior Notes
Due July 2014 at
(Dollars in thousands) June 30, 2012 June 30, 2011
Principal amount on the convertible senior notes
$
172,500
$
172,500
Unamortized debt discount
(11,366
)
(16,252
)
Net carrying amount of convertible debt
$
161,134
$
156,248
Convertible Senior
Notes Due July 2014
For the Years Ended
June 30,
(Dollars in thousands) 2012 2011
Interest cost related to contractual interest coupon
—
5.0%
$
8,625
$
8,625
Interest cost related to amortization of the discount
4,886
4,488
Total interest cost
$
13,511
$
13,113