• Filing Date: 2017-02-22
  • Form Type: 10-K
  • Description: Annual report
v3.6.0.2
Long-Term Debt
12 Months Ended
Dec. 31, 2016
Debt Disclosure [Abstract]  
Long-Term Debt

Note 13 — Long-Term Debt

The following table summarizes the Company’s long-term debt:

 

     December 31,  
     2016      2015  

8% Senior Notes, due January 30, 2020

   $ 40,250       $ 40,250   

3.875% Convertible Senior Notes, due March 15, 2019

     89,990         103,000   

4% Promissory note, due through February 1, 2031

     8,821         —     

3.75% Promissory note, due through September 1, 2036

     8,924         —     
  

 

 

    

 

 

 

Total principal amount

     147,985         143,250   

Less: unamortized discount and issuance costs

     (9,122      (13,821
  

 

 

    

 

 

 

Total long-term debt

   $ 138,863       $ 129,429   
  

 

 

    

 

 

 

As of December 31, 2016, future maturities of long-term debt are as follows:

 

Year

      

2017

   $ 783   

2018

     815   

2019

     90,837   

2020

     41,131   

2021

     915   

Thereafter

     13,504   
  

 

 

 

Total

   $ 147,985   
  

 

 

 

Information with respect to interest expense related to long-term debt is as follows:

 

     Years Ended December 31,  
     2016      2015      2014  

Interest Expense:

        

Contractual interest

   $ 7,315       $ 7,211       $ 7,201   

Non-cash expense*

     3,529         3,543         3,252   
  

 

 

    

 

 

    

 

 

 

Total interest expense related to long-term debt

   $ 10,844       $ 10,754       $ 10,453   
  

 

 

    

 

 

    

 

 

 

 

* Includes amortization of debt discount and issuance costs.

8% Senior Notes

The Company’s publicly traded, unsecured senior notes are currently outstanding in an aggregate amount of $40,250. The notes will mature on January 30, 2020 and bear interest at a fixed annual rate of 8% payable quarterly on January 30, April 30, July 30 and October 30, commencing on April 30, 2013. The notes may be redeemed, in whole or in part, at any time on and after January 30, 2016 upon not less than 30 or more than 60 days’ notice. The redemption price will be equal to 100% of the principal amount redeemed plus accrued and unpaid interest. Additionally, the Company may, at any time, repurchase the senior notes at any price in the open market and may hold, resell or surrender the notes for cancellation.

The senior notes rank on parity with all of the Company’s other existing and future senior unsecured obligations. In addition, to the extent the senior notes are unsecured, they also rank junior in right of payment to any secured debt that the Company may have outstanding to the extent of the value of the assets securing such debt.

The senior notes contain customary restrictive covenants relating to merger, modification of the indenture, subordination, issuance of debt securities and sale of assets, the most significant of which include limitations with respect to certain designated subsidiaries on the incurrence of additional indebtedness or guarantees secured by any security interest on any shares of their capital stock. The senior note covenants also limit the Company’s ability to sell or otherwise dispose of any shares of capital stock of such designated subsidiaries. The senior note covenants do not contain any restrictions on the Company’s payment or declaration of dividends nor require a sinking fund to be established for the purpose of redemption. The Company was in compliance with the senior note covenants during 2016 and 2015.

The effective interest rate, taking into account the stated interest expense and amortization of debt issuance costs, approximates 8.7%.

3.875% Convertible Senior Notes

The Company’s Convertible Senior Notes (the “Convertible Notes”) were initially issued in a private offering for an aggregate principal amount of $103,000. The Convertible Notes rank equally in right of payment to the Company’s existing and future unsecured and unsubordinated obligations. The Convertible Notes bear interest at a rate of 3.875% per year, payable semiannually in arrears on March 15 and September 15 of each year. The Convertible Notes will mature on March 15, 2019 unless repurchased or converted prior to such date. The Company may not redeem the Convertible Notes prior to maturity unless requested by the note holders under certain events specified in the indenture.

The Convertible Notes do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Convertible Notes provide no protection to the note holders in the event of a fundamental change or other corporate transaction involving the Company except those described in the indenture to the Convertible Notes. The Convertible Notes do not require a sinking fund to be established for the purpose of redemption.

In conjunction with the issuance of the Convertible Notes, the Company entered into a prepaid stock repurchase forward contract to repurchase the Company’s common stock. See Note 19 — “Stockholders’ Equity” for the effect of the repurchase forward contract on earnings per share.

The effective interest rate, taking into account both cash and non-cash components, approximates 8.3%. As of December 31, 2016, the remaining amortization period of the debt discount was expected to be 2.2 years.

The following table summarizes information regarding the equity and liability components of the Convertible Notes:

 

     December 31,  
     2016      2015  

Principal amount

   $ 89,990       $ 103,000   

Unamortized discount

     (6,795      (10,871
  

 

 

    

 

 

 

Liability component – net carrying value before issuance costs

   $ 83,195       $ 92,129   
  

 

 

    

 

 

 

Equity component – conversion, net of offering costs

   $ 15,900       $ 15,900   
  

 

 

    

 

 

 

Repurchases of Convertible Senior Notes

During the first quarter of 2016, the Company repurchased an aggregate of $13,010 in principal of its 3.875% convertible senior notes in privately negotiated transactions for cash in the amount of $11,347, inclusive of $81 in commissions. As a result, the Company recognized a $153 gain on extinguishment net of $1,591 in unamortized debt discount and issuance costs and commissions associated with the notes that were repurchased during the first quarter of 2016.

Embedded Conversion Feature

Each $1 of principal of the Convertible Notes was initially convertible into 16.0090 shares of common stock, which is the equivalent of approximately $62.47 per share, subject to adjustment upon the occurrence of specified events, one of which is the payment of a cash dividend on common stock that exceeds $0.275 per share. Since January 2015, the Company’s cash dividends on common stock have exceeded $0.275 per share, resulting in adjustments to the conversion rate. As of December 31, 2016, each $1 of Convertible Notes would have been convertible into 16.0969 shares of common stock, which was the equivalent of approximately $62.12 per share. The note holders may convert all or a portion of their Convertible Notes during specified periods as follows: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; (2) during the five business-day period after any ten consecutive trading-day period in which the trading price per $1 principal amount of the Convertible Notes is less than 98% of the product of the last reported sale price and the conversion rate on each such trading day; (3) if specified corporate events, including a change in control, occur; or (4) at any time on or after January 1, 2019.

The note holders who elect to convert their Convertible Notes in connection with a fundamental change as described in the indenture will be entitled to a “make-whole” adjustment in the form of an increase in the conversion rate. Upon conversion, the Company has options to satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock. As of December 31, 2016, none of the conditions allowing the note holders to convert had been met.

The Company determined that the embedded conversion feature is not a derivative financial instrument but rather is required to be separately accounted for in equity because the Company may elect to settle the conversion option entirely or partially in cash. At issuance, the Company accounted for the equity component of the embedded conversion feature as a reduction in the carrying amount of the debt and an increase in additional paid-in capital.

Embedded Redemption Feature

The note holders also have the right to require the Company to repurchase for cash all or any portion of the Convertible Notes at par prior to the maturity date should any of the fundamental change events described in the indenture occur. The Company concluded that the embedded redemption feature is not a derivative financial instrument and that it is not probable at issuance that any of the specified fundamental change events will occur. Therefore, the embedded redemption feature is not substantive and will not affect the expected life of the liability component.

3.75% Promissory Note

In connection with the business acquisition described in Note 6 — Business Acquisitions, Sorrento PBX, LLC entered into a 20-year secured loan agreement for gross proceeds of $9,000. The loan proceeds were used to finance the acquisition. The loan bears a fixed annual interest rate of 3.75% and is collateralized by the acquired property and the assignment of associated lease agreements. Approximately $53 of principal and interest is payable in 240 monthly installments beginning October 1, 2016. The promissory note may be repaid in full after September 1, 2017 as long as the Company provides at least 60 days’ written notice and pays a prepayment premium as specified in the loan agreement. In addition, the lender may require full payment of the outstanding principal and unpaid interest on September 1, 2031 provided a written notice of its intention to call the note is given at least six months in advance.

4% Promissory Note

On January 14, 2016, HCPCI Holdings, LLC, a subsidiary of the Company, entered into a 15-year secured loan agreement for proceeds of $9,200. The loan is collateralized by the Company’s Tampa, Florida real estate, which is owned by HCPCI Holdings, and the lease agreements associated with this property. The loan bears a fixed annual interest rate of 4%. Approximately $68 of principal and interest is payable in 180 monthly installments beginning March 1, 2016. The promissory note may be repaid in full after February 1, 2017 as long as the Company provides at least 60 days’ written notice and pays a prepayment premium as specified in the loan agreement. The proceeds were used for real estate development projects or other general business purposes.