5. Long-Term Obligations
Convertible Notes
In August 2012, we completed a $201.3 million convertible debt offering, which raised net proceeds of approximately $194.7 million, after deducting $6.6 million in issuance costs. The $201.3 million convertible senior notes mature in 2019 and bear interest at 2¾ percent, which is payable semi-annually in arrears on April 1 and October 1 of each year. We are amortizing the debt issuance costs to interest expense over the life of the debt, or seven years.
The 2¾ percent notes are convertible, at the option of the note holders prior to July 1, 2019 only under certain conditions. On or after July 1, 2019, the notes are initially convertible into approximately 12.1 million shares of common stock at a conversion price of approximately $16.63 per share. We will settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We can redeem the 2¾ percent notes at our option, in whole or in part, on or after October 5, 2016 if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the trading day immediately preceding the date we provide the redemption notice exceeds 130 percent of the applicable conversion price for the 2¾ percent notes on each such day. The redemption price for the 2¾ percent notes will equal 100 percent of the principal amount being redeemed, plus accrued and unpaid interest, plus $90 per each $1,000 principal amount being redeemed. Holders of the 2¾ percent notes may require us to purchase some or all of their notes upon the occurrence of certain fundamental changes, as set forth in the indenture governing these notes, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest.
We account for the 2¾ percent notes using an accounting standard that requires us to assign a value to our convertible debt equal to the estimated fair value of a similar debt instrument without the conversion feature, which results in us recording our convertible debt at a discount. We are amortizing the resulting debt discount over the expected life of the debt, or seven years, as additional non-cash interest expense. Using a combination of the present value of the debt’s cash flows and a Black-Scholes valuation model, we determined that our nonconvertible debt borrowing rate for the 2¾ percent notes was 8 percent. Interest expense for the nine months ended September 30, 2012 included $894,000 of non-cash interest expense related to the amortization of the debt discount and debt issuance costs.
We used a substantial portion of the net proceeds from the issuance of the 2¾ percent notes to repurchase our 25¤8 percent convertible subordinated notes. In September 2012, we redeemed the entire $162.5 million in principal of our 25¤8 percent notes at a price of $164.0 million including accrued interest. As a result of the redemption, we recognized a $4.8 million loss. A significant portion of the loss, or $3.6 million, was non-cash and related to the unamortized debt discount and debt issuance costs and the remainder was related to a $1.2 million early redemption premium we paid to the holders of the 25/8 percent notes.
Equipment Financing Arrangement
In October 2008, we entered into a loan agreement related to an equipment financing and in September 2009 and June 2012, we amended the loan agreement to increase the aggregate maximum amount of principal we could draw under the agreement. Each draw down under the loan agreement has a term of three years, with principal and interest payable monthly. Interest on amounts we borrow under the loan agreement is based upon the three year interest rate swap at the time we make each draw down plus 3.5 or four percent, depending on the date of the draw. We are using the equipment purchased under the loan agreement as collateral. In June 2012, we drew down $9.1 million in principal under the loan agreement at an interest rate of 4.12 percent. As of September 30, 2012, we had drawn down $27.4 million in principal under this loan agreement at a weighted average interest rate of 5.51 percent and we can borrow up to an additional $6.0 million in principal to finance the purchase of equipment until April 2014. The carrying balance under this loan agreement at September 30, 2012 and December 31, 2011 was $11.3 million and $5.3 million, respectively. We will continue to use equipment lease financing as long as the terms remain commercially attractive.
|