Prepayment Obligation and Convertible Notes | 3 Months Ended |
Mar. 29, 2014 |
Prepayment Obligation and Convertible Notes | ' |
Prepayment Obligation and Convertible Notes | ' |
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15. Prepayment Obligation and Convertible Notes |
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Prepayment Agreement with Apple Inc. |
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On October 31, 2013, the Company entered into a Prepayment Agreement with Apple pursuant to which our wholly-owned subsidiary, GTAT Corp., is eligible to receive approximately $578,000 (the “Prepayment Amount”), in four separate installments. The Prepayment Amount is to be used exclusively to purchase components necessary for the manufacture of ASF systems and related equipment for use primarily at the Company’s Arizona facility. The Company leases this facility from an affiliate of Apple for a nominal rental fee. The ASF systems and related equipment will be used exclusively to supply sapphire material to Apple, subject to certain exceptions under which such sapphire can be provided to other parties. The Company is required to repay the Prepayment Amount ratably (on a quarterly basis) over a five year period beginning in January 2015, either as a credit against Apple purchases of sapphire goods under the MDSA or as a direct cash payment. The Prepayment Amount is non-interest bearing. The Company’s obligation to repay the Prepayment Amount may be accelerated under certain circumstances, including if the Company does not meet certain financial metrics or meet certain technical and performance covenants. The Company’s obligations under the Prepayment Agreement are secured by (i) the assets held by GT Equipment Holdings LLC (a wholly-owned subsidiary of the Company and the legal owner of the ASF systems and related equipment used in the Arizona facility) and (ii) a pledge of all of the equity interests of GT Equipment Holdings LLC. While the MDSA specifies the Company’s minimum and maximum supply commitments, Apple has no minimum purchase requirements under the terms of the MDSA. The Company determined the installments of the Prepayment Amount that it receives should be recorded as debt at fair value on the date of receipt of each installment. The difference between the fair value of the debt and the Prepayment Amount proceeds received (“debt discount”) is consideration under the MDSA and accounted for as deferred revenue. The debt discount is being amortized to interest expense over a 6-year period ending December 2019 with an effective interest rate of 7.49%, and interest expense of $4,419 was recognized in the three months ended March 29, 2014. The initial installment of $225,000 and second installment of $111,000 were received on November 15, 2013, and January 23, 2014, respectively. As of March 29, 2014 $262,974 is reflected as Prepayment Obligation and $79,054 is recorded as deferred revenue. |
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3.00% Convertible Senior Notes due 2017 |
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On September 28, 2012, the Company issued $220,000 aggregate principal amount of 3.00% Convertible Senior Notes due 2017 (the “2017 Notes”). The net proceeds from the issuance of the 2017 Notes were approximately $212,592, after deducting fees paid to the initial purchasers and other offering costs. The 2017 Notes are senior unsecured obligations of the Company, which pay interest in cash semi-annually (on April 1 and October 1 of each year) at a rate of 3.00% per annum beginning on April 1, 2013. The 2017 Notes are governed by an Indenture dated September 28, 2012 with U.S. Bank National Association, as trustee (the “Indenture”). The 2017 Notes are not redeemable by the Company. |
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The 2017 Notes will mature on October 1, 2017, unless earlier repurchased or converted in accordance with their terms prior to such date. The 2017 Notes may be converted, under the conditions specified below, based on an initial conversion rate of 129.7185 shares of common stock per $1,000 principal amount of 2017 Notes (which represents an initial effective conversion price of the Notes of $7.71 per share), subject to adjustment as described in the Indenture. |
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The 2017 Notes may be converted by the holder, in multiples of $1,000 principal amount, only under the following circumstances: |
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· prior to April 1, 2017, during any calendar quarter commencing after the calendar quarter ending on December 31, 2012 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; |
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· prior to April 1, 2017, during the five business day period after any five consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; |
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· prior to April 1, 2017, upon specified corporate events; |
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· on or after April 1, 2017 until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. |
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Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value (as described in the Indenture), calculated on a proportionate basis for each trading day in a 40 consecutive trading-day conversion period (as described in the Indenture). |
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In addition, following certain corporate events that occur prior to the maturity date (as described in the Indenture), the Company will adjust the conversion rate for a holder of the 2017 Notes who elects to convert its 2017 Notes in connection with such a corporate event in certain circumstances. |
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The effective interest rate on the liability component of the 2017 Notes was 10.7% as of March 29, 2014. Interest expense incurred in connection with the 2017 Notes consisted of the following: |
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| | Three Months Ended | |
| | March 29, 2014 | |
Contractual coupon rate of interest | | $ | 1,632 | |
Amortization of issuance costs and debt discount | | 3,113 | |
Interest expense - Convertible Notes | | $ | 4,745 | |
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The carrying value of our 2017 Notes consisted of the following: |
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| | March 29, 2014 | |
Principal balance | | $ | 220,000 | |
Discount, net of accumulated amortization of $16,143 | | (48,973 | ) |
Carrying amount | | $ | 171,027 | |
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3.00% Convertible Senior Notes due 2020 |
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On December 10, 2013, the Company issued $214,000 aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the “2020 Notes”). The net proceeds from the issuance of the 2020 Notes were approximately $206,530, after deducting fees paid to the initial purchasers and other offering costs. The 2020 Notes are senior unsecured obligations of the Company, which pay interest in cash semi-annually (on June 15 and December 15 of each year) at a rate of 3.00% per annum beginning on June 15, 2014. The 2020 Notes are governed by an Indenture dated December 10, 2013 with U.S. Bank National Association, as trustee (the “2013 Indenture”). The 2020 Notes are not redeemable by the Company. |
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The 2020 Notes will mature on December 15, 2020, unless earlier repurchased or converted in accordance with their terms prior to such date. The 2020 Notes may be converted, under the conditions specified below, based on an initial conversion rate of 82.5764 shares of common stock per $1,000 principal amount of Notes (which represents an initial effective conversion price of the Notes of $12.11 per share), subject to adjustment as described in the 2013 Indenture. |
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The 2020 Notes may be converted by the holder, in multiples of $1,000 principal amount, only under the following circumstances: |
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· prior to June 15, 2020, during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; |
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· prior to June 15, 2020, during the five business day period after any five consecutive trading day period in which the trading price (as defined in the 2013 Indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; |
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· prior to June 15, 2020, upon specified corporate events; |
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· on or after June 15, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. |
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Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value (as described in the 2013 Indenture), calculated on a proportionate basis for each trading day in a 40 consecutive trading-day conversion period (as described in the 2013 Indenture). |
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In addition, following certain corporate events that occur prior to the maturity date (as described in the 2013 Indenture), the Company will adjust the conversion rate for a holder of the 2020 Notes who elects to convert its 2020 Notes in connection with such a corporate event in certain circumstances. |
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The effective interest rate on the liability component of the 2020 Notes was 12.99% as of December 31, 2013. Interest expense incurred in connection with the 2020 Notes consisted of the following: |
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| | Three Months Ended | |
| | March 29, 2014 | |
Contractual coupon rate of interest | | $ | 1,596 | |
Amortization of issuance costs and debt discount | | 2,317 | |
Interest expense - Convertible Notes | | $ | 3,913 | |
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The carrying value of our 2020 Notes consisted of the following: |
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| | March 29, 2014 | |
Principal balance | | $ | 214,000 | |
Discount, net of accumulated amortization of $2,743 | | (96,027 | ) |
Carrying amount | | $ | 117,973 | |
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The Company will be required to repay the following principal amounts under the Apple Prepayment Agreement and 2017 and 2020 Notes: |
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| | Principal | |
Fiscal Year Ending | | Payments | |
2014 (remaining 9 months) | | $ | — | |
2015 | | 67,200 | |
2016 | | 67,200 | |
2017 | | 287,200 | |
2018 | | 67,200 | |
2019 | | 67,200 | |
2020 | | 214,000 | |
Total | | $ | 770,000 | |