Best Buy 2001 Annual Report Download - page 45

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46
$ in thousands, except per share amounts
Senior Subordinated N otes
The Company’s Musicland subsidiary had $110,500 of Senior Subordinated N otes due in 2003 (2003 N otes) and $160,600
of Senior Subordinated N otes due in 2008 (20 08 N otes) outstanding, which were assumed and recorded at their fair value as
part of the M usicland acquisition. Fair value was based upon the present value of the amounts expected to be paid. Both notes
contained change-in-control provisions that required the Company to offer to repurchase the notes within 30 to 60 days after the
Company’s acquisition of Musicland. The offer to repurchase both notes was made on February 12, 2001, at 101.0% of the
aggregate principal amount of the notes plus accrued interest. The offer expired on M arch 16, 2001, at which time $9 3,900 of
the 2003 N otes had been tendered. Accordingly, these 2003 N otes have been classified to the current portion of long-term debt
in the Company’s balance sheet. Amounts tendered under the 2008 N otes were not significant. The Company also has options
to redeem the remaining notes outstanding prior to maturity. The 2003 N otes may be redeemed at 101.1 % o f par until June 15, 2001,
and at par thereafter. The 2008 N otes may be redeemed at 104.9% of par beginning M arch 15, 2 003, and thereafter at prices
declining annually to 100.0% of par on and after M arch 15, 2006.
O n October 5 , 1998, the Company prepaid its $150,000, 8.6% Senior Subordinated N otes due O ctober 1, 20 00, at 102.5% of
their par value. The prepayment premium of $3,800 and the write-off of the remaining deferred debt offering costs of approximately
$1,100 were included in interest expense in fiscal 1999.
Credit Agreement
The Company has a credit agreement (the Agreement) that provides a bank revolving credit facility (the Facility) under which the
Company can borrow up to $100 ,000. The Agreement expires on June 30, 2002. Borrowings under the Facility are unsecured.
Interest on borrowings is at rates specified in the Agreement, as elected by the Company. The Company also pays certain commitment
and agent fees.
The Agreement contains covenants that require maintenance of certain financial ratios and minimum net worth. The Agreement
also requires that the Company has no outstanding principal balance for a period not less than 30 consecutive days, net of cash
and cash equivalents. There were no borrowings under the Facility during fiscal 2001 or 20 00.
Inventory Financing
The Company has a $200,000 inventory financing credit line, which increases to $325,000 on a seasonal basis. Borrowings
are collateralized by a security interest in certain merchandise inventories approximating the outstanding borrowings. The terms of
this arrangement allow the Company to extend the due dates of invoices beyond their normal terms. The amounts extended
generally bear interest at a rate approximating the prime rate. N o amounts were extended under this line in fiscal 2001 or 2000.
The line has provisions that give the financing source a portion of the cash discounts provided by the manufacturers.
Best Buy Co., Inc.N otes