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Convertible Notes, Other Debts And Finance Lease | 9 Months Ended
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Sep. 25, 2020
Debt Disclosure [Abstract] |
Convertible Notes, Other Debts And Capital Leases | CONVERTIBLE NOTES, OTHER DEBTS AND FINANCE LEASES 4.375% Convertible Senior Notes due 2022 In June 2020, the Company issued the 2022 Notes with an aggregate principal amount of $37.7 million in a non-cash exchange for its 2020 Notes with an equal principal amount pursuant to an indenture, dated June 2, 2020 (the “2022 Notes Indenture”), by and between the Company and U.S. Bank National Association, as trustee. The 2022 Notes bear interest at a rate of 4.375% per year, payable in cash on June 1 and December 1 of each year, commencing December 1, 2020. The 2022 Notes will mature on December 1, 2022, unless earlier repurchased by the Company, redeemed by the Company or converted pursuant to their terms. The 2022 Notes are convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 173.9978 shares of Common Stock per $1,000 principal amount of 2020 Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes and under other circumstances as set forth in the 2022 Notes Indenture. Prior to the close of business on the business day immediately preceding September 1, 2022, the 2022 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 26, 2020 (and only during such fiscal quarter), if the last reported sale price of 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 fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Common Stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. Commencing on September 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2022 Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoing circumstances. As the 2022 Notes were issued in exchange for the 2020 Notes, which was accounted for as an extinguishment, the 2022 Notes were initially accounted for at fair value, which was estimated to be $44.4 million. In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2022 Notes was initially valued at $8.3 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The remaining amount of $36.0 million, which represents the fair value of the liability component of the 2022 Notes, was recorded as the initial carrying value of the 2022 Notes. The initial debt discount on the 2022 Notes is $1.7 million, calculated as the difference between the stated principal amount of $37.7 million and the initial carrying value of the liability component of $36.0 million. The debt discount is being amortized to interest expense at the effective interest rate over the contractual terms of the 2022 Notes. The following table presents the components of the 2022 Notes as of September 25, 2020 (in thousands, except for years and percentages):
| September 25, 2020
Liability: |
Principal amount | $ | 37,707 |
Less: Debt discount, net of amortization | (1,521 | )
Less: Debt issuance costs, net of amortization | (477 | )
Carrying amount | $ | 35,709 |
Remaining amortization period (years) | 2.2 |
Effective interest rate on liability component | 6.95 | %
2.00% Convertible Senior Notes due 2024 In September 2019, the Company issued $115.5 million of the 2024 Notes pursuant to an indenture (the “2024 Notes Indenture”), dated September 13, 2019, by and between the Company and U.S. Bank National Association, as trustee. The 2024 Notes bear interest at a rate of 2.00% per year, payable semiannually on March 1 and September 1 of each year. The 2024 Notes will mature on September 1, 2024, unless earlier repurchased by the Company, redeemed by the Company or converted pursuant to their terms. The 2024 Notes are convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 115.5001 shares of Common Stock per $1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $8.66 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes or a notice of redemption and under other circumstances, in each case, as set forth in the 2024 Notes Indenture. The 2024 Notes will be convertible at certain times and upon the occurrence of certain events in the future, in each case, specified in the 2024 Notes Indenture. Further, on or after June 1, 2024, until the close of business on the scheduled trading day immediately preceding the maturity date, holders of the 2024 Notes may convert all or a portion of their 2024 Notes regardless of these conditions. In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2024 Notes was valued at $24.9 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2024 Notes is being amortized to interest expense at the effective interest rate over the contractual term of the 2024 Notes. The following table presents the components of the 2024 Notes as of September 25, 2020 and December 31, 2019 (in thousands, except for years and percentages):
| September 25, 2020 |  | December 31, 2019
Liability: |  |  |
Principal amount | $ | 115,500 |  |  | $ | 115,500 |
Less: Debt discount, net of amortization | (20,415 | ) |  | (23,652 | )
Less: Debt issuance costs, net of amortization | (2,776 | ) |  | (3,219 | )
Carrying amount | $ | 92,309 |  |  | $ | 88,629 |
Remaining amortization period (years) | 3.9 |  |  | 4.7 |
Effective interest rate on liability component | 7.95 | % |  | 7.95 | %
4.00% Convertible Senior Notes due 2020 In December 2015, the Company issued $128.25 million in aggregate principal amount of the 2020 Notes pursuant to an indenture (the “2020 Notes Indenture”), dated December 14, 2015, by and between the Company and U.S. Bank National Association, as trustee. The 2020 Notes bear interest at a rate of 4.00% per year, payable in cash on June 1 and December 1 of each year and the 2020 Notes will mature on December 1, 2020 unless earlier repurchased by the Company, redeemed by the Company or converted pursuant to their terms. In September 2019, the Company used approximately $109.6 million of the net proceeds from the issuance of the 2024 Notes to repurchase $82.5 million aggregate principal of the 2020 Notes in privately negotiated transactions. The repurchase of the 2020 Notes was accounted for as a debt extinguishment, and the consideration transferred was allocated between the equity and liability components by determining the fair value of the conversion option immediately prior to the debt extinguishment and allocating that portion of the repurchase price to additional paid-in capital for $27.1 million, with the residual repurchase price allocated to the liability component, respectively. The partial repurchase of the 2020 Notes resulted in the recognition of a $5.7 million loss on debt extinguishment in the three and nine months ended September 27, 2019. In June 2020, the Company exchanged $37.7 million in aggregate principal amount of the 2020 Notes for $37.7 million in aggregate principal amount of its 2022 Notes. Following the exchange, there was a total of $8.1 million aggregate principal amount of the 2020 Notes remaining outstanding. The exchange of the 2020 Notes was accounted for as a debt extinguishment. The fair value of the consideration transferred in the form of the 2022 Notes of $44.4 million was allocated between the equity and liability components of the 2020 Notes by determining the fair value of the liability component immediately prior to the extinguishment, which was $37.4 million. The remaining amount of $7.0 million was allocated to additional paid-in capital. The exchange of the 2020 Notes resulted in the recognition of a $0.8 million loss on debt extinguishment for nine months ended September 25, 2020 which is recorded in “loss on debt extinguishment” in the Condensed Consolidated Statement of Operations. The remaining 2020 Notes are convertible into cash, shares of the Common Stock, or a combination thereof, at the Company’s election, at a conversion rate of 173.9978 shares of Common Stock per $1,000 principal amount of 2020 Notes (which is equivalent to a conversion price of approximately $5.75 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes and under other circumstances, in each case, as set forth in the 2020 Notes Indenture. On or after September 1, 2020, until the close of business on the scheduled trading day immediately preceding the maturity date, holders of the 2020 Notes may convert all or a portion of their 2020 Notes regardless of these conditions. As of September 25, 2020, the 2020 Notes were convertible because this condition had been met. In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the issuance of the 2020 Notes was initially valued at $26.1 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2020 Notes is being amortized to interest expense at the effective interest rate over the contractual terms of the 2020 Notes. The following table presents the components of the 2020 Notes as of September 25, 2020 and December 31, 2019 (in thousands, except for years and percentages):
| September 25, 2020 |  | December 31, 2019
Liability: |  |  |
Principal amount | $ | 8,053 |  |  | $ | 45,785 |
Less: Debt discount, net of amortization | (72 | ) |  | (2,151 | )
Less: Debt issuance costs, net of amortization | (9 | ) |  | (259 | )
Carrying amount | $ | 7,972 |  |  | $ | 43,375 |
Remaining amortization period (years) | 0.2 |  |  | 0.9 |
Effective interest rate on liability component | 9.94 | % |  | 9.94 | %
The 2020 Notes, the 2022 Notes or the 2024 Notes become convertible during a fiscal quarter when the last reported sale price of the Common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the respective notes on each applicable trading day. When this occurs, the Company reclassifies the unamortized debt discount for the applicable notes from “Additional paid-in-capital” to convertible debt in the mezzanine equity section in the Condensed Consolidated Balance Sheet as of that period end. The 2020 Notes were convertible during the fiscal quarter ended March 27, 2020, as this condition had been met, and again became convertible commencing September 1, 2020. The 2022 Notes and the 2024 Notes were not convertible as of September 25, 2020 or during any prior fiscal quarters. The following table presents interest expense recognized for the 2020 Notes, 2022 Notes and the 2024 Notes (in thousands):
| Three months ended |  | Nine months ended
| September 25, 2020 |  | September 27, 2019 |  | September 25, 2020 |  | September 27, 2019
Contractual interest expense | $ | 1,070 |  |  | $ | 1,235 |  |  | $ | 3,141 |  |  | $ | 3,800 |
Amortization of debt discount | 1,366 |  |  | 1,513 |  |  | 4,549 |  |  | 4,425 |
Amortization of debt issuance costs | 212 |  |  | 185 |  |  | 638 |  |  | 535 |
Total interest expense recognized | $ | 2,648 |  |  | $ | 2,933 |  |  | $ | 8,328 |  |  | $ | 8,760 |
Other Debts and Finance Leases The Company has a variety of debt and credit facilities primarily in France to satisfy the financing requirements of the operations of its French subsidiary. These arrangements are summarized in the table below (in thousands):
| September 25, 2020 |  | December 31, 2019
Financing from French government agencies related to various government incentive programs (1) | $ | 14,533 |  |  | $ | 16,566 |
Relief loans (2) | 6,375 |  |  | — |
Term loans | 179 |  |  | 587 |
Obligations under finance leases | 22 |  |  | 71 |
Total debt obligations | 21,109 |  |  | 17,224 |
Less: current portion | (11,402 | ) |  | (6,713 | )
Long-term portion | $ | 9,707 |  |  | $ | 10,511 |
(1) As of September 25, 2020 and December 31, 2019, loans backed by French R&D tax credit receivables were $13.0 million and $15.1 million, respectively. As of September 25, 2020, the French Subsidiary had an aggregate of $19.5 million of R&D tax credit receivables from the French government from 2021 through 2024. See Note 8, “Balance Sheet Components” for additional information. These tax loans have a fixed rate of 0.6%, plus EURIBOR 1 month + 1.3% and mature between 2021 through 2023. The remaining loans of $1.5 million at September 25, 2020, primarily relate to financial support from French government agencies for R&D innovation projects at minimal interest rates, and these loans mature between 2020 through 2025. (2) Refer to the below section “Relief Loans” for the description of these loans. Future minimum repayments The table below presents the future minimum repayments of debts and finance lease obligations in France as of September 25, 2020 (in thousands):
Years ending December 31, | Finance lease obligations |  | Other Debt obligations
2020 (remaining three months) | $ | — |  |  | $ | 300 |
2021 | 22 |  |  | 11,183 |
2022 | — |  |  | 5,159 |
2023 | — |  |  | 3,670 |
2024 | — |  |  | 117 |
Thereafter | — |  |  | 658 |
Total | $ | 22 |  |  | $ | 21,087 |
Line of Credit On December 19, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as lender. As of September 25, 2020, the Credit Agreement provided for a secured revolving loan facility in an aggregate principal amount of up to $25.0 million, based on a borrowing base of eligible accounts receivable and inventory, with a maturity date of October 31, 2020. On October 30, 2020, the Company amended the Credit Agreement to, among other things, extend the maturity date to October 30, 2022 and amend the interest rates for the revolving loans. See Note 18, “Subsequent Events” for additional information regarding the amendment. The Company may use availability under the revolving loan facility for the issuance of letters of credit. The proceeds of the revolving loans may be used for general corporate purposes. As of September 25, 2020, the revolving loans bore interest, at the Company’s election, at a floating rate per annum equal to either (1) 1.25% plus the greater of (i) 1 month LIBOR on any day plus 2.50% and (ii) the prime rate as reported in the Wall Street Journal from time to time or (2) 2.25% plus LIBOR for an interest period of one, two or three months. Interest on the revolving loans is payable monthly in arrears, in the case of prime rate loans, and at the end of the applicable interest period, in the case of LIBOR loans. The Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the Credit Agreement. The Company is also required to maintain compliance with an adjusted quick ratio, a minimum EBITDA covenant (tested quarterly) and a minimum liquidity covenant, in each case, determined in accordance with the terms of the Credit Agreement. As of September 25, 2020, the Company was in compliance with the covenants under the Credit Agreement. As of September 25, 2020, there was $0.2 million of outstanding letters of credit issued under the Credit Agreement. There were no revolving borrowings under the Credit Agreement as of September 25, 2020. As of September 25, 2020, the Company has outstanding unsecured letters of credit issued by other banks in the amount of $2.4 million. Relief Loans In June 2020, Harmonic France was granted a loan from Société Générale S.A. (the “SG Loan”) in the aggregate amount of 5,000,000 Euros, pursuant to a state guarantee program introduced in March 2020 to provide relief to companies from the financial consequences of the COVID-19 pandemic. The SG Loan initially matures in 12 months (with an option to extend for up to five years) and bears an effective interest rate of 0.51% per annum payable annually. The SG Loan may be repaid at any time prior to maturity with no repayment penalties. There are no restrictions on the use of funds from the SG Loan. The purpose of the funds from the SG Loan is to allow the preservation of activity and employment in France. As of September 25, 2020, there was $5.8 million outstanding under the loan, which is recorded in “Other debts and finance lease obligations, current” in the Condensed Consolidated Balance Sheets. In April 2020, Harmonic International GmbH was granted a loan of CHF 500,000 from UBS Switzerland AG (the “UBS Loan”) in accordance with Article 3 of the COVID-19 joint security regulation with an initial maturity of five years. The exclusive purpose of the UBS Loan is to guarantee the Company’s current liability requirements. The UBS Loan does not bear any interest. The UBS Loan is to be repaid in full no later than April 8, 2025. As of September 25, 2020, there was $0.5 million outstanding under the loan, which is recorded in “Other debts and finance lease obligations, long-term” in the Condensed Consolidated Balance Sheets.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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