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(10) In September 2011, the company issued $500 million of 3.375 percent Senior Notes (the “2011 Notes”) due September 15, 2021 and received proceeds of $492 million, net of underwriting discounts and debt issuance costs. Interest on the 2011 Notes is payable semi-annually on March 15 and September 15 of each year, beginning on March 15, 2012. The net proceeds of the 2011 Notes will be used for general corporate purposes. The company may, at any time, redeem the 2011 Notes at a redemption price equal to 100 percent of the principal amount, plus a “make whole” premium described in the indenture. Additionally, if a change of control triggering event occurs, as defined by the terms of the indenture, the company will be required to offer to purchase the 2011 Notes at a purchase price equal to 101 percent of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The company is generally not limited under the indenture governing the 2011 Notes in its ability to incur additional indebtedness provided that the aggregate amount of secured debt does not exceed 15 percent of consolidated net tangible assets in addition to other allowed liens. Further, while the indenture governing the 2011 Notes contains certain restrictive covenants, including restrictions on liens and restrictions on sale and leaseback transactions, these covenants are not expected to impact the company’s liquidity or capital resources.
In February 2004, the company issued $330 million of 1.5 percent Convertible Senior Notes (the “2004 Notes”) due February 15, 2024 and received proceeds of $323 million, net of underwriting discounts. In December 2004, the company irrevocably elected to pay the principal amount of the 2004 Notes in cash. The 2004 Notes are convertible if a specified trading price of the company’s common stock (the “trigger price”) is achieved and maintained for a specified period. The trigger price condition was satisfied during the fourth quarter of 2010 and third quarter of 2011 and the 2004 Notes were therefore classified as short-term debt. During the nine months ended September 30, 2011, holders converted $73 million of the 2004 Notes in exchange for the principal balance owed in cash plus 1,601,081 shares of the company’s common stock. During the nine months ended September 30, 2010, holders converted $11 million of the 2004 Notes in exchange for the principal balance owed in cash plus 141,156 shares of the company’s common stock.
The company applies the provisions of FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (ASC 470-20). ASC 470-20 requires the issuer of a convertible debt instrument to separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods.
The following table presents information related to the liability and equity components of the 2004 Notes:
|
(in thousands) |
|
September 30,
2011 |
|
December 31,
2010 |
|
|
|
|
|
|
|
|
|
Carrying value of the equity component |
|
$ |
19,515 |
|
$ |
21,181 |
|
|
|
|
|
|
|
|
|
Principal amount and carrying value of the liability component |
|
$ |
23,653 |
|
$ |
96,692 |
|
During the first quarter of 2011, the conversion rate was adjusted in accordance with the indenture. The 2004 Notes are convertible into shares of the company’s common stock (par value $0.01 per share) at a conversion rate of 36.2815 shares per each $1,000 principal amount of 2004 Notes. Interest expense for the three and nine months ended September 30, 2011 included original coupon interest of $0.1 million and $0.4 million, respectively. Interest expense for the three and nine months ended September 30, 2010 included original coupon interest of $0.4 million and $1.1 million, respectively. The effective interest rate on the liability component was 4.375 percent through February 15, 2009 at which time the discount on the liability was fully amortized. There was no debt discount amortization for the nine months ended September 30, 2011 and 2010. The if-converted value of $40 million was in excess of the principal value as of September 30, 2011.
As of September 30, 2011, the company was in compliance with all covenants related to its debt agreements. |