Debt and Subordinated Convertible Debentures

Debt consists of the following:



	September 30, 2013			December 31, 2012
URNA and subsidiaries debt:
Accounts Receivable Securitization Facility (1)	$	462		$	453
$1.9 billion ABL Facility (2)	1,478			1,184
5 ³/₄ percent Senior Secured Notes	750			750
10¹/₄ percent Senior Notes	221			223
9¹/₄ percent Senior Notes	494			494
7 ³/₈ percent Senior Notes	750			750
8³/₈ percent Senior Subordinated Notes	750			750
8¹/₄ percent Senior Notes	693			695
7 ⁵/₈ percent Senior Notes	1,325			1,325
6¹/₈ percent Senior Notes	400			400
Capital leases	125			148
Total URNA and subsidiaries debt	7,448			7,172
Holdings:
4 percent Convertible Senior Notes (3)	134			137
Total debt (4)	7,582			7,309
Less short-term portion (5)	(630		)	(630		)
Total long-term debt	$	6,952		$	6,679

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(1)

In February 2013, we amended our accounts receivable securitization facility to increase the facility size from $475 to $550. An additional purchaser was also added to the facility, and the facility was not otherwise amended. In September 2013, we renewed the facility which now expires on September 18, 2014. At September 30, 2013, $29 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 0.9 percent at September 30, 2013. During the nine months ended September 30, 2013, the monthly average amount outstanding under the accounts receivable securitization facility, including the former facility and the amended facility, was $443, and the weighted-average interest rate thereon was 0.8 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility, including the former facility and the amended facility, during the nine months ended September 30, 2013 was $493. Borrowings under the accounts receivable securitization facility are permitted only to the extent that the face amount of the receivables in the collateral pool, net of applicable reserves, exceeds the outstanding loans. As of September 30, 2013, there were $491 of receivables, net of applicable reserves, in the collateral pool.

(2)

In June 2013, our ABL facility was amended to reduce the minimum borrowing period and to increase the number of available loan tranches. At September 30, 2013, $370 was available under our ABL facility, net of $52 of letters of credit. The interest rate applicable to the ABL facility was 2.2 percent at September 30, 2013. During the nine months ended September 30, 2013, the monthly average amount outstanding under the ABL facility was $1,167, and the weighted-average interest rate thereon was 2.3 percent. The maximum month-end amount outstanding under the ABL facility during the nine months ended September 30, 2013 was $1,478.

(3)

The difference between the September 30, 2013 carrying value of the 4 percent Convertible Senior Notes and the $156 principal amount reflects the $22 unamortized portion of the original issue discount recognized upon issuance of the notes, which is being amortized through the maturity date of November 15, 2015. Because the 4 percent Convertible Senior Notes were redeemable at September 30, 2013, an amount equal to the $22 unamortized portion of the original issue discount is separately classified in our condensed consolidated balance sheets and referred to as “temporary equity.” Based on the price of our common stock during the third quarter of 2013, holders of the 4 percent Convertible Senior Notes have the right to redeem the notes during the fourth quarter of 2013 at a conversion price of $11.11 per share of common stock. Since October 1, 2013 (the beginning of the fourth quarter), none of the 4 percent Convertible Senior Notes were redeemed.

(4)

In August 1998, a subsidiary trust of Holdings (the “Trust”) issued and sold $300 of 6 ¹/2 percent Convertible Quarterly Income Preferred Securities (“QUIPS”) in a private offering. The Trust used the proceeds from the offering to purchase 6¹/2 percent subordinated convertible debentures due 2028 (the “Debentures”), which resulted in Holdings receiving all of the net proceeds of the offering. The QUIPS were non-voting securities, carried a liquidation value of $50 (fifty dollars) per security and were convertible into Holdings’ common stock. During the nine months ended September 30, 2013, an aggregate of $55 of QUIPS was redeemed. As of September 30, 2013, there were no QUIPS outstanding. In connection with these redemptions, during the nine months ended September 30, 2013, we retired $55 principal amount of our subordinated convertible debentures and recognized a loss of $2, inclusive of the write-off of capitalized debt issuance costs. This loss is reflected in interest expense-subordinated convertible debentures in our condensed consolidated statements of income. As of September 30, 2013, there were no subordinated convertible debentures outstanding. Total debt at December 31, 2012 excludes $55 of these Debentures, which were separately classified in our condensed consolidated balance sheets and referred to as “subordinated convertible debentures.” The subordinated convertible debentures reflected the obligation to our subsidiary that issued the QUIPS. As of December 31, 2012, this subsidiary was not consolidated in our financial statements because we were not the primary beneficiary of the Trust. As of September 30, 2013, the Trust was liquidated.


(5)	As of September 30, 2013, our short-term debt primarily reflects $462 of borrowings under our accounts receivable securitization facility and $134 of 4 percent Convertible Senior Notes. The 4 percent Convertible Senior Notes mature in 2015, but are reflected as short-term debt because they are redeemable at September 30, 2013.

Convertible Note Hedge Transactions

In connection with the November 2009 issuance of $173 aggregate principal amount of 4 percent Convertible Senior Notes, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying condensed consolidated statements of stockholders’ equity. The convertible note hedge transactions cover, subject to anti-dilution adjustments, 14.0 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Senior Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible Senior Notes are converted prior to May 15, 2015. In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $55.00 or $60.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 10.1 million or 10.4 million shares, respectively.

Loan Covenants and Compliance

As of September 30, 2013, we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility and the senior notes. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

In October 2011, we amended the ABL facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the ABL facility. Since the October 2011 amendment of the ABL facility and through September 30, 2013, availability under the ABL facility has exceeded the required threshold and, as a result, these maintenance covenants have been inapplicable. Subject to certain limited exceptions specified in the amended ABL facility, the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility will only apply in the future if availability under the amended ABL facility falls below the greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding.