Quarterly report pursuant to Section 13 or 15(d)

Debt

v2.4.0.8
Debt
6 Months Ended
Jun. 30, 2013
Debt Disclosure [Abstract]  
DEBT
DEBT
In January 2013, we entered into note purchase agreements (the “Notes”) with qualified institutional buyers and accredited investors (collectively the “Purchaser”) in a private placement in reliance on exemptions from registration under the Securities Act of 1933, (the “Securities Act”). The Purchasers of the Notes include Frost Gamma Investments Trust, a trust affiliated with Dr. Frost, and Hsu Gamma Investment, L.P., an entity affiliated with Dr. Hsiao. The Notes were issued on January 30, 2013. The Notes, which total $175.0 million, bear interest at the rate of 3.00% per year, payable semiannually on February 1 and August 1 of each year, beginning August 1, 2013. The Notes will mature on February 1, 2033, unless earlier repurchased, redeemed or converted. Upon a fundamental change as defined in the instruments governing the Notes, subject to certain exceptions, the holders may require us to repurchase all or any portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus any accrued and unpaid interest to but not including the fundamental change repurchase date.
The Notes will be convertible at any time on or after November 1, 2032, through the second scheduled trading day immediately preceding the maturity date, at the option of the holders. Additionally, holders may convert their Notes prior to the close of business on the scheduled trading day immediately preceding November 1, 2032, under the following circumstances: (1) conversion based upon satisfaction of the trading price condition relating to the Notes; (2) conversion based on the Common Stock price; (3) conversion based upon the occurrence of specified corporate events; or (4) if we call the Notes for redemption. The Notes will be convertible into cash, shares of our Common Stock, or a combination of cash and shares of Common Stock, at our election unless we have made an irrevocable election of net share settlement. The initial conversion rate for the Notes will be 141.4827 shares of Common Stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $7.07 per share of Common Stock), and will be subject to adjustment upon the occurrence of certain events. In addition, we will, in certain circumstances, increase the conversion rate for holders who convert their Notes in connection with a make-whole fundamental change (as defined in the Indenture) and holders who convert upon the occurrence of certain specific events prior to February 1, 2017 (other than in connection with a make-whole fundamental change).
We may not redeem the Notes prior to February 1, 2017. On or after February 1, 2017 and before February 1, 2019, we may redeem for cash any or all of the Notes but only if the last reported sale price of our Common Stock exceeds 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date on which we deliver the redemption notice. The redemption price will equal 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to but not including the redemption date. On or after February 1, 2019, we may redeem for cash any or all of the Notes at a redemption price of 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest up to but not including the redemption date.
The terms of the Notes, include, among others: (i) rights to convert into shares of our Common Stock, including upon a fundamental change; and (ii) a coupon make-whole payment in the event of a conversion by the holders of the Notes on or after February 1, 2017 but prior to February 1, 2019. We have determined that these specific terms are considered to be embedded derivatives. As a result, embedded derivatives are required to be separated from the host contract, the Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. We have concluded that the embedded derivatives within the Notes meet these criteria and, as such, must be valued separate and apart from the Notes and recorded at fair value each reporting period.
For purposes of accounting and financial reporting, we combine these embedded derivatives and value them together as one unit of accounting. At each reporting period, we record these embedded derivatives at fair value which is included as a component of the Notes on our Condensed Consolidated Balance Sheets.
We have used a binomial lattice model in order to estimate the fair value of the embedded derivative in the Notes. A binomial lattice model generates two probable outcomes — one up and another down —arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the Notes will be converted early if the conversion value is greater than the holding value; or (ii) the Notes will be called if the holding value is greater than both (a) the redemption price (as defined in the Indenture) and (b) the conversion value plus the coupon make-whole payment at the time. If the Notes are called, then the holder will maximize their value by finding the optimal decision between (1) redeeming at the redemption price and (2) converting the Notes.
Using this lattice, we valued the embedded derivatives using the “with-and-without method,” where the value of the Notes including the embedded derivatives is defined as the “with,” and the value of the Notes excluding the embedded derivatives is defined as the “without.” This method estimates the value of the embedded derivatives by looking at the difference in the values between the Notes with the embedded derivatives and the value of the Notes without the embedded derivatives.
The lattice model requires the following inputs: (i) price of our Common Stock; (ii) Conversion Rate (as defined in the Indenture); (iii) Conversion Price (as defined in the Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.
The following table sets forth the inputs to the lattice model used to value the embedded derivative:
 
June 30, 2013
 
Issuance Date
Stock price
$
7.10

 
$
6.20

Conversion Rate
141.4827

 
141.4827

Conversion Price
$
7.07

 
$
7.07

Maturity date
February 1, 2033

 
February 1, 2033

Risk-free interest rate
1.57
%
 
1.12
%
Estimated stock volatility
35
%
 
40
%
Estimated credit spread
983 basis points

 
944 basis points


The following table sets forth the fair value of the Notes with and without the embedded derivatives, and the fair value of the embedded derivatives as of the issuance date and June 30, 2013:
(In thousands)
June 30, 2013
 
Issuance Date
Fair value of Notes:
 
 
 
With the embedded derivatives
$
189,481

 
$
175,000

Without the embedded derivatives
$
115,402

 
$
115,796

Estimated fair value of the embedded derivatives
$
74,079

 
$
59,204


Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded derivatives. For example, a decrease in our estimated credit spread results in an increase in the estimated value of the embedded derivatives. Conversely, a decrease in the price of our Common Stock results in a decrease in the estimated fair value of the embedded derivatives. From the date the Notes were issued through June 30, 2013, we observed an increase in the market price of our Common Stock which resulted in a $14.9 million increase in the estimated fair value of our embedded derivatives recorded in Fair value changes of derivative instruments, net in our Condensed Consolidated Statements of Operations.
The principal amounts, unamortized discount and net carrying amounts of the Notes as of June 30, 2013 were as follows:
(In thousands)
Principal
Balance
 
Unamortized
Discount
 
Net Carrying
Amount
Notes
$
175,000

 
$
60,555

 
$
114,445


We have entered into line of credit agreements with fifteen financial institutions in Chile and Spain. These lines of credit are used primarily as a source of working capital for inventory purchases.
The following table summarizes the amount outstanding under the lines of credit:
(Dollars in thousands)
 
 
 
 
 
 Balance Outstanding
Lender
 
Interest rate on
borrowings
 
Credit line
capacity
 
June 30,
2013
 
December 31,
2012
Itau Bank
 
6.66
%
 
$
3,000

 
$
2,664

 
$
2,738

Bank of Chile
 
7.50
%
 
3,000

 
2,237

 
2,292

BICE Bank
 
5.02
%
 
2,000

 
940

 
2,451

Corp Banca
 
5.00
%
 
1,000

 
140

 
1,248

BBVA Bank
 
5.55
%
 
3,000

 
1,949

 
2,823

Penta Bank
 
9.48
%
 
1,000

 
793

 
833

Security Bank
 
7.60
%
 
1,500

 
994

 

BCI
 
5.00
%
 
1,500

 
1,591

 

Estado Bank
 
5.99
%
 
2,000

 
1,851

 
1,963

Sabadell Bank
 
7.60
%
 
195

 

 
3

Bilbao Vizcaya Bank
 
4.90
%
 
390

 
91

 
377

Banco Popular
 
8.25
%
 
390

 
11

 
260

Santander Bank
 
6.00
%
 
195

 

 

Banesto
 
5.80
%
 
195

 

 
163

Banca March
 
6.25
%
 
260

 

 
44

Total
 
 
 
$
19,625

 
$
13,261

 
$
15,195


At June 30, 2013 and December 31, 2012, the weighted average interest rate on our lines of credit was approximately 6.4% and 6.5%, respectively.
At June 30, 2013 and December 31, 2012, we had mortgage notes and other debt payables related to Farmadiet as follows:
(In thousands)
June 30,
2013
 
December 31,
2012
Current portion of lines of credit and notes payable
$
2,385

 
$
2,331

Other long-term liabilities
3,636

 
3,916

Total mortgage notes and other debt payables
$
6,021

 
$
6,247


The mortgages and other debts payable mature at various dates ranging from 2015 through 2024 bearing variable interest rates from 2.7% up to 6.3%. The weighted average interest rate on the mortgage notes and other debt payable at June 30, 2013 and December 31, 2012, was 4.2% and 4.5%, respectively.