For the Years Ended December 31, 2013, 2012 and 2011
The Company has long-term debt as follows:
|At December 31,|
|Revolving credit agreement||$ 77,562||$ 54,325|
|Less current portion||10,000||10,000|
|Total excluding current portion||$ 264,655||$ 249,585|
The weighted average interest rate on long-term borrowings outstanding as of December 31, 2013 and 2012, was 2.31% and 2.39%, respectively.
The aggregate annual maturities of long-term debt for each of the next five years are approximately as follows:
In the above table, the total principal of the Convertible Note of $115.0 million is included in the amount due in 2017. The carrying value of the Convertible Notes at December 31, 2013, is $107.1 million.
On November 20, 2012, the Company entered into a new Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and RBS Citizens, N.A. as Co-Syndication Agents, J.P. Morgan Securities LLC ("J.P. Morgan Securities"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and RBS Citizens, N.A. as Joint Bookrunners and Joint Lead Arrangers, and the other lenders named therein (collectively, the "Lenders"). The Credit Agreement, which expires on July 31, 2017, replaced the Company's then existing $275.0 million Amended and Restated Revolving Credit Agreement (the "Revolving Credit Agreement") and $42.5 million Second Amended and Restated Term Loan Credit Agreement (the Term Loan Agreement).
The Credit Agreement, provides a $400.0 million revolving credit facility under which we may issue letters of credit for our benefit and a $100.0 million term loan facility. The term loan commitment requires quarterly payments of principal (which commenced on March 31, 2013) at the rate of $2.5 million per quarter with $55.0 million payable in the final quarter of the facility's term. We may increase the aggregate amount of each of the revolving credit facility and the term loan facility by up to $100.0 million in accordance with the terms of the Credit Agreement.
The revolving credit facility permits the Company to pay cash dividends. The Lenders have been granted a security interest in substantially all of the Company's and its domestic subsidiaries' personal property and other assets (including intellectual property but excluding real estate), including a pledge of 66% of the Company's equity interest in certain foreign subsidiaries and 100% of the Company's equity interest in its domestic subsidiaries, as collateral for the Company's obligations under the Credit Agreement. At December 31, 2013, there was $77.6 million outstanding under the Credit Agreement, excluding letters of credit, with $285.6 million available for borrowing. However, based on EBITDA levels for 2013, amounts available for borrowing were limited to $217.6 million. Letters of credit are considered borrowings for purposes of the Credit Agreement. A total of $36.8 million in letters of credit was outstanding under the Credit Agreement at December 31, 2013, $30.3 million of which related to the SH-2G(I) New Zealand sales contract. At December 31, 2012, there was $54.3 million outstanding under the Revolving Credit Agreement, excluding letters of credit, with $331.1 million available for borrowing. A total of $14.6 million in letters of credit was outstanding under the Revolving Credit Agreement at December 31, 2012, 6.7 million of which related to the guaranteed minimum payments to the Commonwealth of Australia associated with the ownership transfer of the eleven SH-2G(A) helicopters (along with the spare parts and associated equipment). This was eliminated in the second quarter of 2013, following the delivery of the final guaranteed payment of $6.4 million (AUD) on April 2, 2013. The Company has not issued any letters of credit other than those issued under the Revolving Credit Agreement.
Interest rates on amounts outstanding under the Credit Agreement are variable, and are determined based on the Consolidated Senior Secured Leverage Ratio, as defined in the Credit Agreement. At December 31, 2013, the interest rate for the outstanding amounts on both the revolving credit facility and term loan commitment was 1.72%. At December 31, 2012, the interest rate for the outstanding amounts on both the former Revolving Credit Agreement and former Term Loan Agreement was 1.75%. In addition, the Company is required to pay a quarterly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.200% to 0.325% per annum, based on the Consolidated Senior Secured Leverage Ratio. Fees for outstanding letters of credit range from 1.250% to 2.125%, based on the Consolidated Senior Secured Leverage Ratio.
The financial covenants associated with the Credit Agreement include a requirement that (i) the ratio of Consolidated Senior Secured Indebtedness to Consolidated EBITDA, as defined in the Credit Agreement, cannot be greater than 3.50 to 1.00, (ii) the ratio of Consolidated Total Indebtedness to Consolidated EBITDA, as defined in the Credit Agreement, cannot be greater than 4.00 to 1.00, and iii) the ratio of Consolidated EBITDA to the sum of (a) all interest, premium payments, debt discounts, fees, charges and related expenses and (b) the portion of rent expense under capital leases that is treated as interest expense, as defined in the Credit Agreement, cannot be less than 4.00 to 1.00. The Company was in compliance with those financial covenants as of and for the quarter ended December 31, 2013, and management does not anticipate noncompliance in the foreseeable future.
In November 2010, the Company issued convertible unsecured notes due on November 15, 2017, in the aggregate principal amount of $115.0 million in a private placement offering (the "Convertible Notes"). These notes bear 3.25% interest per annum on the principal amount, payable semiannually in arrears on May 15 and November 15 of each year, beginning on May 15, 2011. Proceeds from the offering were $111.0 million, net of fees and expenses which were capitalized. The proceeds were used to repay $62.2 million of borrowings outstanding on the Company's Revolving Credit Agreement, make a $25.0 million voluntary contribution to the Qualified Pension Plan and pay $13.2 million for the purchase of call options related to the convertible note offering. See below for further discussion of the call options.
The Convertible Notes will mature on November 15, 2017, unless earlier redeemed, repurchased by the Company or converted. Upon conversion, the Convertible Notes require net share settlement, where the aggregate principal amount of the notes will be paid in cash and remaining amounts due, if any, will be settled in cash, shares of the Company's common stock or a combination of cash and shares of common stock, at the Company's election.
The following table illustrates the conversion rate at each date:
|December 31, 2013||December 31, 2012|
|Conversion Rate per $1,000 principal amount (1)||29.6292||29.5635|
|Conversion Price (2)||$ 33.75||$ 33.83|
|Contingent Conversion Price (3)||$ 43.88||$ 43.97|
|Aggregate shares to be issued upon conversion (4)||3,407,357||3,399,802|
Because the embedded conversion option is indexed to the Company's own stock and would be classified in shareholders' equity, it does not meet the criterion under FASB Accounting Standards Codification Topic 815 - Derivatives and Hedging ("ASC 815") that would require separate accounting as a derivative instrument.
In connection with the offering, we entered into convertible note hedge transactions with affiliates of the initial purchasers. These transactions are intended to reduce the potential dilution to our Company's shareholders upon any future conversion of the notes. The call options, which cost an aggregate $13.2 million, were recorded as a reduction of additional paid-in capital. The Company also entered into warrant transactions concurrently with the offering, pursuant to which we sold warrants to acquire up to approximately 3.4 million shares of our common stock to the same counterparties that entered into the convertible note hedge transactions. Proceeds received from the issuance of the warrants totaled approximately $1.9 million and were recorded as additional paid-in capital. The convertible note hedge and warrant transactions effectively increased the conversion price of the convertible notes.
The following table illustrates the warrant price at each date:
|December 31, 2013||December 31, 2012|
|Warrant Price||$ 44.14||$ 44.23|
ASC 815 provides that contracts are initially classified as equity if (1) the contract requires physical settlement or net-share settlement, or (2) the contract gives the company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The settlement terms of our purchased call options and sold warrant contracts require net-share settlement. Based on the guidance in ASC 815, the purchased call option contracts were recorded as a reduction of equity and the warrants were recorded as an addition to equity as of the trade date. ASC 815 states that a reporting entity shall not consider contracts to be derivative instruments if the contract issued or held by the reporting entity is both indexed to its own stock and classified in shareholders' equity in its Consolidated Balance Sheet. The Company concluded the purchased call option contracts and the warrant contracts should be accounted for in shareholders' equity and are therefore not to be considered derivative instruments.
ASC 470-20 Debt with Conversion and Other Options ("ASC 470-20"), clarifies the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement. ASC 470-20 specifies that an issuer of such instruments should separately account for the liability and equity components of the instruments in a manner that reflects the issuer's non-convertible debt borrowing rate which interest costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $115.0 million was bifurcated into the debt component of $101.7 million and the equity component of $13.3 million. The difference between the note payable principal balance and the value of the debt component is being accreted to interest expense over the term of the notes. The debt component was recognized at the present value of associated cash flows discounted using a 5.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company incurred $3.6 million of debt issuance costs in connection with the sale of the Convertible Notes, of which $0.5 million was recorded as an offset to additional paid-in capital. The balance, $3.1 million, is being amortized over the term of the notes.
The carrying amount of the equity component and the principal amount of the liability component, the unamortized discount, and the net carrying amount of the liability are as follows:
|December 31, 2013||December 31, 2012|
|Principal amount of liability||$ 115,000||$ 115,000|
|Carrying value of liability||$ 107,093||$ 105,260|
|Equity component||$ 13,329||$ 13,329|
As of December 31, 2013, the "if converted value" exceeds the principal amount of the Convertible Notes by $20.4 million since the closing price of the Company's Common Stock was $39.73 compared to the conversion price of $33.75 for the Convertible Notes.
Interest expense associated with the Convertible Notes consisted of the following:
|For the year ended December 31,|
|Contractual coupon rate of interest||$ 3,738||$ 3,738||$ 3,737|
|Accretion of convertible notes discount||1,833||1,738||1,679|
|Interest expense - convertible notes||$ 5,571||$ 5,476||$ 5,416|
The effective interest yield of the convertible debt due in 2017 is 5.25% at December 31, 2013, and the cash coupon interest rate is 3.25%.
The Company also has certain other credit arrangements to borrow funds on a short-term basis with interest at current market rates. There were $0.6 million of short-term borrowings outstanding under such other credit arrangements as of December 31, 2013. As of December 31, 2012, there were no material short-term borrowings outstanding under such other credit arrangements. The weighted average interest rate on short-term borrowings for 2013 and 2012 was 2.5% and 3.0%, respectively.
In 2012, the Company incurred $2.4 million in debt issuance costs in connection with the new Credit Agreement. These costs have been capitalized and will be amortized over the term of the agreement. Total amortization expense for the year ended December 31, 2013, was $1.1 million. Total amortization expense for the year ended December 31, 2012, was $1.3 million, including the $0.2 million write-off of capitalized fees related to the former Revolving Credit Agreement and former Term Loan Agreement. Total amortization expense for the year ended December 31, 2011, was $1.3 million.
Cash payments for interest were $11.0 million, $10.2 million and $10.2 million for 2013, 2012 and 2011, respectively.