Convertible Senior Notes | 6 Months Ended |
Jun. 30, 2014 |
Convertible Senior Notes | ' |
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(5) Convertible Senior Notes |
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Convertible Senior Notes due 2020 |
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In December 2013, the Company issued 1.75% convertible senior notes due December 15, 2020, in a public offering for an aggregate principal amount of $220,000. The convertible senior notes bear interest at a rate of 1.75% per annum. Interest is payable semiannually in arrears on June 15 and December 15 of each year. The convertible senior notes are senior unsecured obligations and rank equally to the Company’s future unsecured senior indebtedness and senior in right of payment to any of the Company’s future subordinated indebtedness. |
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In January 2014, the Company closed the sale of an additional $30,000 aggregate principal amount of its 1.75% convertible senior notes due 2020 (Additional Notes). The Additional Notes were sold pursuant to the exercise of an over-allotment option granted by the Company in the underwriting agreement related to the offer and sale of $220,000 aggregate principal amount of its 1.75% convertible senior notes due 2020. |
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In connection with the offering of the Additional Notes, the Company entered into additional convertible note hedge and warrant transactions (Additional Call Spread Transaction) with respect to shares of its common stock. The additional convertible note hedge, which cost an aggregate $7,953 and was recorded, net of tax, as a reduction of additional paid-in capital, consists of the Company’s option to purchase up to 3,100 common stock shares at a price of $9.64 per share and will expire upon the maturity of the notes. Additionally, the Company sold warrants to purchase 3,100 shares of its common stock at a price of $14.26 per share. The warrants expire ratably from March 2021 through January 2022. The proceeds from the sale of warrants of $4,053 was recorded as an increase to additional paid-in capital. The 2020 Additional Call Spread Transaction has no effect on the terms of the convertible senior notes due 2020 and reduces potential dilution by effectively increasing the conversion price of the convertible senior notes due 2020 to $14.26 per share of the Company’s common stock. |
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The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to Other Conversion Rate Adjustments, would be 32,425. |
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Convertible Senior Notes due 2015 |
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In May 2008, the Company issued 3.25% convertible senior notes due May 15, 2015, in a public offering for an aggregate principal amount of $175,000. The convertible senior notes bear interest at a rate of 3.25% per annum. Interest is payable semiannually in arrears on May 15 and November 15 of each year. The convertible senior notes are senior unsecured obligations and rank equally to the Company’s future unsecured senior indebtedness and senior in right of payment to any of the Company’s future subordinated indebtedness. |
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In January 2014, the Company repurchased $6,514 of notes at approximately 103.4% of their principal amount. The repurchase of the convertible senior notes was accounted for as an extinguishment of debt, and accordingly, the Company recognized a $506 loss primarily associated with the premium paid to repurchase the convertible senior notes and the recognition of certain remaining unamortized debt discount and issuance costs. |
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The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to Other Conversion Rate Adjustments, would be 2,587. |
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The accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion require the debt and equity components to be separately accounted for in a manner that reflects our nonconvertible borrowing rate when interest expense is recognized in subsequent periods. The amount recorded as debt is based on the fair value of the debt component as a standalone instrument, determined using an average interest rate for similar nonconvertible debt issued by entities with credit ratings comparable to the Company’s at the time of issuance. The difference between the debt recorded at inception and its principal amount is to be accreted to principal through interest expense through the estimated life of the note. |
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As of June 30, 2014 and December 30, 2013, the following summarizes the liability and equity components of the convertible senior notes: |
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| | As of June 30, 2014 | | | As of December 30, 2013 | |
| | Principal | | | Unamortized | | | Net | | | Principal | | | Unamortized | | | Net | |
Discount | Carrying | Discount | Carrying |
| Amount | | Amount |
| | (in thousands) | |
Liability components: | | | | |
Convertible senior notes due 2020 | | $ | 250,000 | | | $ | (56,545 | ) | | $ | 193,455 | | | $ | 220,000 | | | $ | (52,833 | ) | | $ | 167,167 | |
Convertible senior notes due 2015 | | | 32,395 | | | | (1,266 | ) | | | 31,129 | | | | 38,909 | | | | (2,341 | ) | | | 36,568 | |
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Total | | $ | 282,395 | | | $ | (57,811 | ) | | $ | 224,584 | | | $ | 258,909 | | | $ | (55,174 | ) | | $ | 203,735 | |
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| | As of June 30, 2014 | | | As of December 30, 2013 | |
| | Embedded | | | Embedded | | | Total | | | Embedded | | | Embedded | | | Total | |
conversion | conversion | conversion | conversion |
option — | option — | option — | option — |
Convertible | Convertible | Convertible | Convertible |
Senior | Senior | Senior | Senior |
Notes | Notes | Notes | Notes |
| Issuance | | Issuance |
| Costs | | Costs |
| | (in thousands) | |
Equity components: | | | | | | | | | | | | | | | | | | | | | | | | |
Additional paid-in capital: | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2020 | | $ | 60,227 | | | $ | (1,916 | ) | | $ | 58,311 | | | $ | 53,000 | | | $ | (1,644 | ) | | $ | 51,356 | |
Convertible senior notes due 2015 | | | 39,781 | | | $ | (1,413 | ) | | | 38,368 | | | | 39,928 | | | | (1,413 | ) | | | 38,515 | |
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| | $ | 100,008 | | | $ | (3,329 | ) | | $ | 96,679 | | | $ | 92,928 | | | $ | (3,057 | ) | | $ | 89,871 | |
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The components of interest expense resulting from the convertible senior notes for the quarter and two quarters ended June 30, 2014 and July 1, 2013 are as follows: |
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| | For the Quarter Ended | | | For the Two Quarters Ended | | | | | | | | | |
| | June 30, | | | July 1, | | | June 30, | | | July 1, | | | | | | | | | |
2014 | 2013 | 2014 | 2013 | | | | | | | | |
| | (In thousands) | | | (In thousands) | | | | | | | | | |
Contractual coupon interest | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2020 | | $ | 1,094 | | | $ | — | | | $ | 2,179 | | | $ | — | | | | | | | | | |
Convertible senior notes due 2015 | | | 263 | | | | 1,422 | | | | 526 | | | | 2,844 | | | | | | | | | |
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| | $ | 1,357 | | | $ | 1,422 | | | $ | 2,705 | | | $ | 2,844 | | | | | | | | | |
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Amortization of debt discount | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2020 | | $ | 1,751 | | | $ | — | | | $ | 3,515 | | | $ | — | | | | | | | | | |
Convertible senior notes due 2015 | | | 345 | | | | 1,715 | | | | 683 | | | | 3,395 | | | | | | | | | |
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| | $ | 2,096 | | | $ | 1,715 | | | $ | 4,198 | | | $ | 3,395 | | | | | | | | | |
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Amortization of debt issuance costs | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2020 | | $ | 175 | | | $ | — | | | $ | 353 | | | $ | — | | | | | | | | | |
Convertible senior notes due 2015 | | | 35 | | | | 174 | | | | 69 | | | | 343 | | | | | | | | | |
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| | $ | 210 | | | $ | 174 | | | $ | 422 | | | $ | 343 | | | | | | | | | |
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As of June 30, 2014 and December 30, 2013, remaining unamortized debt issuance costs included in other non-current assets were $5,795 and $5,399, respectively. The debt issuance costs and debt discount are being amortized to interest expense over the term of the convertible senior notes using the effective interest rate method. At June 30, 2014, the remaining weighted average amortization period for the unamortized senior convertible note discount and debt issuance costs was 6.3 years. |
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For the quarter and two quarters ended June 30, 2014, the amortization of debt discount and debt issuance costs for the 2020 convertible senior notes and the 2015 convertible senior notes is based on an effective interest rate of 6.48% and 8.37%, respectively. For the quarter and two quarters ended July 1, 2013, the amortization of debt discount and debt issuance costs for the 2015 convertible senior notes is based on an effective interest rate of 8.37%. |