Debt | 3 Months Ended |
Mar. 31, 2015 |
Debt Disclosure [Abstract] | |
Debt | Note 8. Debt |
The table below summarizes the carrying amount and weighted average interest rate of the Company’s notes payable and long-term debt (in thousands, except percentages): |
|
| 31-Mar-15 | | | | 31-Dec-14 |
| Carrying | | Weighted | | | | Carrying | | | Weighted |
Amount | Average | Amount | Average |
| Interest | | Interest |
| Rate | | Rate |
Notes payable | $ | 12,921 | | — | | | $ | 12,771 | | | — | |
Short-term borrowing | | 10,000 | | 3.18 | % | | | 10,000 | | | 3.18 | % |
Total notes payable and short-term borrowing | $ | 22,921 | | | | | $ | 22,771 | | | | |
Long-term debt, current and non-current: | | | | | | | | | | | | |
Bank borrowings-Comerica Bank | $ | 15,787 | | 2.92 | % | | $ | 17,500 | | | 3.16 | % |
Bank borrowings-Mitsubishi Bank | | 12,469 | | 1.53 | % | | | — | | | — | |
Acquisition-related | | 15,482 | | 5 | % | | | 5,836 | | | 1.5 | % |
Total long-term debt, current and non-current | | 43,738 | | | | | | 23,336 | | | | |
Unaccreted discount within current portion of long-term debt | | (180 | ) | | | | | — | | | | |
Unaccreted discount within long-term debt, net of current portion | | (305 | ) | | | | | — | | | | |
Total long-term debt, net of unaccreted discount | $ | 43,253 | | | | | $ | 23,336 | | | | |
Reported as: | | | | | | | | | | | | |
Current portion of long-term debt | $ | 16,138 | | | | | $ | 2,445 | | | | |
Long-term debt, net of current portion | | 27,115 | | | | | | 20,891 | | | | |
Total long-term debt, net of unaccreted discount | $ | 43,253 | | | | | $ | 23,336 | | | | |
Notes payable |
The Company regularly issues notes payable to its suppliers in China in exchange for accounts payable. These notes are supported by non-interest bearing bank acceptance drafts issued under the Company’s existing line of credit facility and are due three to six months after issuance. As a condition of the notes payable arrangements, the Company is required to keep a compensating balance at the issuing banks that is a percentage of the total notes payable balance until the amounts are settled. |
At March 31, 2015, the Company’s subsidiary in China had a short-term line of credit facility with a banking institution which expires in June 2015. Under the agreement, RMB 160.0 million ($26.1 million) can be used for bank acceptance drafts (with a 25% to 30% compensating balance requirement) and up to RMB 120.0 million ($19.6 million) can be used for short-term loans, which will bear interest at varying rates. In September 2014, the Company’s China subsidiary renewed its second short-term line of credit facility with a banking institution, under which RMB 150.0 million ($24.5 million) can be used for bank acceptance drafts (with a 30% compensating balance requirement) or short-term loans. This line of credit facility expires in September 2015. As of March 31, 2015, the non-interest bearing bank acceptance drafts issued in connection with the Company’s notes payable to its suppliers in China, under these line of credit facilities, had an outstanding balance of $12.9 million. |
As of March 31, 2015 and December 31, 2014, compensating balances relating to these bank acceptance drafts issued to suppliers and the Company’s subsidiaries totaled $4.0 million and $3.8 million, respectively. Compensating balances are classified as restricted cash and investments on the Company’s condensed consolidated balance sheets. |
Short-term borrowing |
In October 2014, the Company’s subsidiary in China entered into a short-term advance financing agreement, under one of its line of credit facilities, to borrow $5.0 million against export sales to its parent company. This financing agreement bears interest at 4.02% per annum. Interest and the principal are due in April 2015. As of March 31, 2015, the outstanding principal balance was $5.0 million. |
In November 2014, the Company’s subsidiary in China entered into a second short-term advance financing agreement, under one of its line of credit facilities, to borrow $5.0 million against export sales to its parent company. This financing agreement bears interest at 2.33% per annum and service fees at 1.00% per annum. Interest, service fees and the principal are due in May 2015. As of March 31, 2015, the outstanding principal balance was $5.0 million. |
Acquisition-related |
In connection with the acquisition of NeoPhotonics Semiconductor on March 29, 2013, the Company was obligated to pay 1,050 million Japanese Yen (“JPY”) in three equal installments on the first, second and third anniversaries of the closing date for the purchase of the real estate used by NeoPhotonics Semiconductor, of which 700 million JPY ($5.8 million) was outstanding as of December 31, 2014. The obligation bore interest at 1.5% per year, payable annually, and was secured by the acquired real estate property. This loan was repaid in full in February 2015. |
As part of the purchase consideration to acquire the tunable laser products of EMCORE in January 2015 (See Note 5), the Company issued the EMCORE Note, as amended, of $15.5 million, which had a maturity of two years from the closing of the transaction and an interest rate of 5% per annum for the first year and 13% per annum for the second year. The interest was payable semi-annually in cash. In addition, the EMCORE Note was subject to prepayment under certain circumstances and was secured by certain of the assets to be sold pursuant to the asset purchase agreement with EMCORE. The EMCORE Note was subordinated to the Company’s existing bank debt in the U.S . The EMCORE Note was repaid in full in April 2015 and, therefore, was classified within the current portion of long-term debt. |
Bank borrowings |
The Company has a credit agreement with Comerica Bank as lead bank in the U.S., which has been amended several times. In January 2015, the Company executed an amendment to its credit agreement with Comerica Bank to refinance the then-outstanding Comerica term loan. Under the Credit Amendment, the $20.0 million revolving credit facility was replaced with a $25.0 million senior secured revolving credit line with the maturity date on November 2, 2016. In March 2015, the senior secured revolving credit line was further amended to increase the borrowing capacity from $25.0 million to $30.0 million. Borrowings under the amended revolving credit facility bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. The Credit Amendment also modified the EBITDA and liquidity covenants and eliminated the need to maintain compensating balances (restricted cash). The credit agreement also restricts the Company’s ability to incur certain additional debt or to engage in specified transactions, restricts the payment of dividends and is secured by substantially all of the Company’s U.S. assets, other than intellectual property assets. The Company also repaid the remaining Comerica term loan balance and borrowed $15.8 million under the amended revolving credit facility. |
The components of the credit facilities are as follows: |
— | A $30.0 million revolving credit facility under which there was $15.8 million outstanding at March 31, 2015 and no outstanding borrowing as of December 31, 2014, subject to covenant requirements. Amounts borrowed, if any, are due on or before November 2, 2016 and bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. As of March 31, 2015 the rate on the LIBOR option was 2.92%. | | | | | | | | | | | |
— | Under the term loan facility, $17.5 million was outstanding at December 31, 2014 which was repaid in full in January 2015. Prior to the repayment, borrowings under the term loan bore interest at an interest rate option of a base rate as defined in the agreement plus 2.0% or LIBOR plus 3.0%. | | | | | | | | | | | |
The Company’s original credit agreement with Comerica Bank required the maintenance of specified financial covenants, including a debt to EBITDA ratio and liquidity ratios. The Company was not in compliance with the debt to EBITDA covenant at March 31, 2014, which noncompliance was effectively waived in the amendment described below. During 2014, the Company executed an amendment to the credit agreement that waived the testing of certain covenants for compliance, provided that the Company maintained compensating balances equal to outstanding amounts under the credit agreement in accounts for which the bank had sole access. The Company’s amended credit agreement with Comerica executed in January 2015 eliminated the compensating balance requirement and modified the financial covenants, including the maintenance of a modified EBITDA and certain liquidity covenants. As of March 31, 2015 and December 31, 2014, the amount of the Company’s cash and investments in its compensating balance accounts for the term loan facility with Comerica Bank was zero and $17.5 million, respectively, which was classified as current and non-current restricted cash and investments on the Company’s condensed consolidated balance sheet (see Note 6). |
On February 25, 2015, the Company entered into certain loan agreements and related special agreements (collectively, the “Loan Arrangements”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Mitsubishi Bank”) that provided for (i) a term loan in the aggregate principal amount of 500 million JPY ($4.2 million) (the “Term Loan A”) and (ii) a term loan in the aggregate principal amount of one billion JPY ($8.4 million) (the “Term Loan B” and together with the Term Loan A, the “Mitsubishi Bank Loans”). The Mitsubishi Bank Loans are secured by a mortgage on certain real property and buildings owned by our Japanese subsidiary. The full amount of each of the Mitsubishi Bank Loans was drawn on the closing date of February 25, 2015. Interest on the Mitsubishi Bank Loans accrues and is paid monthly based upon the annual rate of the monthly Tokyo Interbank Offer Rate (TIBOR) plus 1.40%. The Term Loan A requires interest only payments until the maturity date of February 23, 2018, with a lump sum payment of the aggregate principal amount on the maturity date. The Term Loan B requires equal monthly payments of principal equal to 8,333,000 JPY until the maturity date of February 25, 2025, with a lump sum payment of the balance of 8,373,000 JPY on the maturity date. Interest on the Term Loan B is accrued based upon monthly TIBOR plus 1.40% and is secured by real estate collateral. In conjunction with the execution of the Bank Loans, the Company paid a loan structuring fee, including consumption tax, of 40,500,000 JPY ($0.3 million). |
The Mitsubishi Bank Loans contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company’s Japanese subsidiary, including, among other things, restrictions on cessation in business, management, mergers or acquisitions. The Mitsubishi Bank Loans contain financial covenants relating to minimum net assets, maximum ordinary loss and a dividends covenant. The Mitsubishi Bank Loans also include customary events of default, including but not limited to the nonpayment of principal or interest, violations of covenants, restraint on business, dissolution, bankruptcy, attachment and misrepresentations. In March 2015, the Company used a portion of the proceeds of the Mitsubishi Bank Loans to repay the then-outstanding loan related to the acquisition of NeoPhotonics Semiconductor, which had an outstanding principal and interest amount of approximately 710 million JPY ($6.0 million) and the remainder will be used for general working capital. |
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At March 31, 2015, maturities of long-term debt were as follows (in thousands): |
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2015 (remaining nine months) | $ | 16,109 | | | | | | | | | | |
2016 | | 16,623 | | | | | | | | | | |
2017 | | 836 | | | | | | | | | | |
2018 | | 5,015 | | | | | | | | | | |
2019 | | 836 | | | | | | | | | | |
Thereafter | | 4,319 | | | | | | | | | | |
| $ | 43,738 | | | | | | | | | | |
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