| Debt | Note 9. Debt
3.50% Convertible Senior Notes due February 2018
In February 2013, the Company issued 3.50% Convertible Senior Notes due 2018 (the “3.50% Convertible Notes”) under an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Holders of the 3.50% Convertible Notes may convert their notes at any time until the close of the business day immediately preceding the maturity date. The 3.50% Convertible Notes are convertible into common stock of the Company at an initial conversion rate equal to 187.6877 shares of common stock per $1,000 principal amount, which is equivalent to a conversion price of approximately $5.33 per share of common stock, subject to adjustment. The 3.50% Convertible Notes bear interest at a rate of 3.50% per year, payable semi-annually in arrears in cash on February 1 and August 1 of each year. The 3.50% Convertible Notes will mature on February 1, 2018, unless earlier repurchased, redeemed or converted.
Holders of the 3.50% Convertible Notes who convert their notes in connection with a “make-whole fundamental change,” as defined in the indenture, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a “fundamental change,” as defined in the indenture, holders of the 3.50% Convertible Notes may require the Company to purchase all or a portion of their 3.50% Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of 3.50% Convertible Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. As of September 30, 2017, approximately $13.0 million aggregate principal amount was outstanding.
3.50% Series A Convertible Senior Notes due February 2018
In April 2014, the Company issued 3.50% Series A Convertible Senior Notes due 2018 (the “3.50% Series A Convertible Notes”) under an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Holders of the 3.50% Series A Convertible Notes may convert their notes at any time on or after November 1, 2017 until the close of business on the business day immediately preceding the maturity date. The initial conversion rate is 187.6877 shares of the Company’s common stock per $1,000 principal amount, which represents an initial conversion price of approximately $5.33 per share of the Company’s common stock. The 3.50% Series A Convertible Notes generally have the same interest rate, maturity and other terms as the 3.50% Convertible Notes, except that the 3.50% Series A Convertible Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s option.
Holders of the 3.50% Series A Convertible Notes who convert their notes in connection with a “make-whole fundamental change,” as defined in the indenture, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a “fundamental change,” as defined in the indenture, holders of the 3.50% Series A Convertible Notes may require the Company to purchase all or a portion of their 3.50% Series A Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 3.50% Series A Convertible Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. As of September 30, 2017, approximately $26.6 million aggregate principal amount was outstanding.
3.75% Convertible Senior Notes due July 2022
In August 2017, the Company issued $85.0 million aggregate principal amount of its 3.75% Convertible Senior Notes due 2022 (the “3.75% Convertible Notes”) under an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. $53.0 million aggregate principal amount of the 3.75% Convertible Notes were issued to certain holders of the Company’s outstanding 3.50% Convertible Notes and 3.50% Series A Convertible Notes (together, the “Existing Notes”) in exchange for approximately $47.0 million aggregate principal amount of the Existing Notes (the “Exchange”) and $32.0 million aggregate principal amount of the 3.75% Convertible Notes were issued to certain other qualified new investors for cash. The net proceeds of the cash issuance were used to repurchase approximately $28.0 million of Existing Notes (the “Repurchase”).
Holders of the 3.75% Convertible Notes may convert their notes at any time on or after April 15, 2022 until the close of the business day immediately preceding the maturity date. Prior to April 15, 2022, holders of the 3.75% Convertible Notes may convert their notes only under the following circumstances:
·
during any fiscal quarter after the fiscal quarter ending December 31, 2017, and only during such fiscal quarter, if the closing sale price of the Company’s common stock for each of 20 or more trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 130% of the conversion price in effect on the last trading day of the immediately preceding fiscal quarter;
·
during the five-consecutive business days immediately after any five consecutive trading-day period in which the trading price per $1,000 principal amount for each trading day of that period was equal to or less than 98% of the product of the closing sale price of shares of the Company’s common stock and the applicable conversion rate for such trading day; or
·
upon the occurrence of specified corporate transactions as described in the indenture.
Upon conversion, the Company will have the right to pay cash, or deliver shares of common stock of the Company or a combination thereof, at the Company’s election. The initial conversion rate is 174.8252 shares of the Company’s common stock per $1,000 principal amount (which represents an initial conversion price of approximately $5.72 per share of the Company’s common stock). The conversion rate, and thus the conversion price, is subject to adjustment as further described below.
Holders of the 3.75% Convertible Notes who convert their notes in connection with a “make-whole fundamental change,” as defined in the indenture, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a “fundamental change,” as defined in the indenture, holders of the 3.75% Convertible Notes may require the Company to purchase all or a portion of their note at a fundamental change repurchase price equal to 100% of the principal amount of the 3.75% Convertible Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date.
In accordance with Accounting Standards Codification, or ASC 470-20, Debt with Conversion and Other Options , the Company separately accounted for the liability and equity conversion components of the 3.75% Convertible Notes. The principal amount of the liability component of the 3.75% Convertible Notes was $66.5 million as of the date of issuance based on the present value of its cash flows using a discount rate of 8%, the Company’s approximate borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The carrying value of the equity conversion component was $13.8 million. The debt issuance and offering costs totaling $4.7 million, of which $0.8 million was allocated to the equity component with the remaining $3.9 million allocated to the debt discount. The liability component is being accreted to the principal amount of the 3.75% Convertible Notes using the effective interest method through the maturity in July 2022.
Following the issuance of the 3.75% Convertible Notes, approximately $13.0 million aggregate principal amount of the 3.50% Convertible Notes and approximately $26.6 million aggregate principal amount of the 3.50% Series A Convertible Notes remained outstanding. The Company accounted for the Exchange and Repurchase as an extinguishment of the Existing Notes and recorded a charge of approximately $3.2 million in Other expenses, net and a reduction of the carrying value of the equity conversion component of $5.0 million in the first quarter of fiscal 2018.
Revolving Credit Facility
On June 14, 2017, the Company entered into a credit and security agreement (the “Revolving Credit Facility”) with MidCap Financial Trust. The agreement provides the Company with a revolving credit facility in the initial amount of $52.0 million, which the Company may request be increased by up to $33.0 million to a new total of $85.0 million through additional tranches, each with a $1.0 million minimum. Availability for borrowings under the Revolving Credit Facility is subject to a borrowing base that is calculated as a function of the value of the Company’s eligible accounts receivable and eligible inventory, and the Company is required to maintain a minimum drawn balance of at least 30% of such availability.
The Revolving Credit Facility’s stated maturity date is June 14, 2021.
The Revolving Credit Facility contains restrictions and covenants applicable to the Company. Among other requirements, the Company may not permit the Fixed Charge Coverage Ratio (as defined in the Revolving Credit Facility) to be less than a certain specified ratio for each fiscal quarter during the term of the Revolving Credit Facility. In addition, the Revolving Credit Facility contains customary covenants that limit, among other things, the ability of the Company and its subsidiaries to (i) incur indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets, (v) make certain loans or investments, (vi) merge or consolidate, (vii) voluntarily repay or prepay certain indebtedness and (viii) enter into transactions with affiliates, in each case subject to certain exceptions. The Company was in compliance with the covenants as of September 30, 2017.
The following table presents the carrying value of all Convertible Notes and borrowings under the Revolving Credit Facility (collectively, “Notes”) (in thousands):
As of September 30, 2017
Revolving
3.50%
3.50% Series A
Convertible Notes
3.75%
Total
Carrying amount of equity conversion component
$
—
$
—
$
$
$
Principal amount of the Notes
$
$
$
$
$
Unamortized debt costs
—
)
—
)
)
Unamortized debt discount
—
—
)
)
)
Net carrying amount
$
$
$
$
$
Reported as:
Short-term debt
$
Long-term debt
Total debt
$
As of June 30, 2017
Revolving
3.50%
Convertible Notes
3.50% Series A
Convertible Notes
Total
Carrying amount of equity conversion component
$
—
$
—
$
$
Principal amount of the Notes
$
$
$
$
Unamortized debt costs
—
)
—
)
Unamortized debt discount
—
—
)
)
Net carrying amount
$
$
$
$
Reported as:
Short-term debt
$
Long-term debt
Total debt
$
A summary of interest expense on the Notes is as follows (in thousands):
Three Months Ended
September 30,
2017
2016
Interest expense related to contractual interest coupon
$
$
Interest expense related to amortization of debt discount
Interest expense related to amortization of debt issuance costs
$
$ |
