Kaydon (KDN)

 

In May 2003, the Company issued $200.0 million of 4% Contingent Convertible Senior Subordinated Notes due 2023 (the “Notes”). The Notes were convertible into shares of Company common stock provided certain contingencies were met. During the second quarter of 2008, holders of $11.5 million of the Notes converted their Notes into 394,375 shares of Company common stock, which were issued from treasury stock. On August 21, 2008, the Company announced that it was exercising its right to redeem all of the remaining outstanding Notes. On September 19, 2008, the Company announced that it had completed its redemption of the Notes as the holders of all of the outstanding Notes exercised their rights to convert their Notes into shares of Company common stock at a conversion price of $29.16 per share. The Company issued 6,464,308 shares of Company common stock from treasury stock upon conversion in the third quarter and a total of 6,858,683 shares of Company common stock from treasury stock in 2008, which includes shares issued upon the conversion in the second quarter. The Company had provided a deferred tax liability for the additional interest deduction for tax purposes on the Notes as the deductibility of the additional interest would have been recaptured if the Notes were redeemed or surrendered for conversion at an amount less than the tax accreted value. As the Notes were converted into the Company’s common stock in 2008 at amounts higher than the tax accreted value, the deferred tax liability provided for through the date of conversion of $21.6 million was eliminated through an adjustment to the Company’s shareholders’ equity. The elimination of this deferred tax liability did not affect current tax expense.

 

Interest expense on the Notes was recorded through the applicable conversion dates of the Notes and equaled $5.4 million for 2008. The holders of the Notes forfeited their rights to the interest upon the conversion of their Notes. The accrued interest liability at the date of the respective Note conversions that totaled $2.3 million was reclassified to additional paid in capital in accordance with Emerging Issues Task Force Issue No. 85-17, “Accrued Interest upon Conversion of Convertible Debt.”

 

 

28 KAYDON CORPORATION FORM 10K

 

The Company’s 4% Contingent Convertible Senior Subordinated Notes due 2023 (the “Notes”) are convertible into a total of 6,858,710 shares of Company common stock at a conversion price of $29.16 per share, provided certain contingencies are met. The Notes become convertible during any calendar quarter if the closing sale price of Company common stock is more than $34.99 for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter. Based on this formula, holders will be able to convert their Notes during the first quarter of 2008. The Notes may not be redeemed by the Company until May 30, 2008, but are redeemable at any time thereafter at par, plus accrued and unpaid interest. The Notes are convertible into common stock upon the issuance of a notice of redemption.

 

Holders of the Notes may require us to repurchase all or a portion of their Notes on May 23, 2008, 2013, and 2018, at 100 percent of the principal amount of the Notes, plus accrued but unpaid interest (including contingent interest and liquidated damages, if any) to the date of repurchase, payable in cash. If the holders of the Notes exercise their right to require us to repurchase all or a portion of their Notes on May 23, 2008, the Company intends to refinance the obligation on a long-term basis with its revolving credit facility. Because the Company has the ability and intent to refinance the obligation on a long-term basis, the Notes continue to be reported as long-term debt at December 31, 2007.

 

In addition, the holders have the right to require redemption of the Notes before the specified maturity dates in the event of a change of control of the Company, as identified in the Notes’ Indenture.

 

Interest expense on the Notes equaled $8.0 million during each of 2007, 2006 and 2005. The Notes bear interest at 4 percent per year, payable semi-annually, and under certain circumstances beginning in 2008, may bear additional contingent interest of 0.50 percent per year. Note issuance costs of approximately $6.5 million are being amortized over a five-year period. Amortization of Note issuance costs equaled $1.3 million during each of 2007, 2006 and 2005. Amortization of Note issuance costs is recorded as a component of interest expense. Unamortized Note issuance costs included in other assets equaled $0.5 million and $1.8 million as of December 31, 2007 and 2006.

 

The Company has entered into an agreement for its senior credit facility with a syndicate of lenders. The credit agreement provides for a $300.0 million senior unsecured revolving credit facility. The credit facility provides for borrowings and issuance of letters of credit by the Company and its subsidiaries in various currencies for general corporate purposes, including acquisitions. The credit facility matures on July 12, 2010 and is guaranteed by the Company and certain of the Company’s domestic subsidiaries. Interest expense incurred on borrowings under the revolving credit facility will be based on the London Interbank Offered Rate. The revolving credit facility contains restrictive financial covenants on a consolidated basis including leverage and coverage ratios, utilizing measures of earnings and interest expense as defined in the revolving credit facility agreement. Under the leverage ratio restriction, the Company may not allow the ratio of total indebtedness, net of domestic cash in excess of $15.0 million, to adjusted earnings before interest expense, taxes, depreciation and amortization to exceed 3.5 to 1.0. Under the interest coverage ratio restriction, the Company may not allow the ratio of adjusted earnings before interest expense and taxes to interest expense to be less than 3.0 to 1.0. The Company is in compliance with all restrictive covenants contained in the revolving credit facility at December 31, 2007. After consideration of the facility’s covenants and $4.9 million of letters of credit issued under the facility, the Company has available credit under its revolving credit facility of $295.1 million at December 31, 2007.

 

The Company’s outstanding long-term debt consisted of its 4% Contingent Convertible Senior Subordinated Notes due 2023 totaling $200,000,000 at both December 31, 2007 and 2006.

 

 

The Company’s 4% Contingent Convertible Senior Subordinated
Notes due 2023 (the “Notes”) are convertible into a
total of 6,858,710 shares of Company common stock at a
conversion price of $29.16 per share, provided certain
contingencies are met. The Notes become convertible during any
calendar quarter if the closing sale price of Company common
stock is more than $34.99 for at least 20 trading days in a
period of 30 consecutive trading days ending on the last trading
day of the preceding calendar quarter. Based on this formula,
holders will be able to convert their Notes during the first
quarter of 2008. The Notes may not be redeemed by the Company
until May 30, 2008, but are redeemable at any time
thereafter at par, plus accrued and unpaid interest. The Notes
are convertible into common stock upon the issuance of a notice
of redemption.

 

Holders of the Notes may require us to repurchase all or a
portion of their Notes on May 23, 2008, 2013, and 2018, at
100 percent of the principal amount of the Notes, plus
accrued but unpaid interest (including contingent interest and
liquidated damages, if any) to the date of repurchase, payable
in cash. If the holders of the Notes exercise their right to
require us to repurchase all or a portion of their Notes on
May 23, 2008, the Company intends to refinance the
obligation on a long-term basis with its revolving credit
facility. Because the Company has the ability and intent to
refinance the obligation on a long-term basis, the Notes
continue to be reported as long-term debt at December 31,
2007.

 

In addition, the holders have the right to require redemption of
the Notes before the specified maturity dates in the event of a
change of control of the Company, as identified in the
Notes’ Indenture.

 

Interest expense on the Notes equaled $8.0 million during
each of 2007, 2006 and 2005. The Notes bear interest at
4 percent per year, payable semi-annually, and under
certain circumstances beginning in 2008, may bear additional
contingent interest of 0.50 percent per year. Note issuance
costs of approximately $6.5 million are being amortized
over a five-year period. Amortization of Note issuance costs
equaled $1.3 million during each of 2007, 2006 and 2005.
Amortization of Note issuance costs is recorded as a component
of interest expense. Unamortized Note issuance costs included in
other assets equaled $0.5 million and $1.8 million as
of December 31, 2007 and 2006.

 

The Company has entered into an agreement for its senior credit
facility with a syndicate of lenders. The credit agreement
provides for a $300.0 million senior unsecured revolving
credit facility. The credit facility provides for borrowings and
issuance of letters of credit by the Company and its
subsidiaries in various currencies for general corporate
purposes, including acquisitions. The credit facility matures on
July 12, 2010 and is guaranteed by the Company and certain
of the Company’s domestic subsidiaries. Interest expense
incurred on borrowings under the revolving credit facility will
be based on the London Interbank Offered Rate. The revolving
credit facility contains restrictive financial covenants on a
consolidated basis including leverage and coverage ratios,
utilizing measures of earnings and interest expense as defined
in the revolving credit facility agreement. Under the leverage
ratio restriction, the Company may not allow the ratio of total
indebtedness, net of domestic cash in excess of
$15.0 million, to adjusted earnings before interest
expense, taxes, depreciation and amortization to exceed 3.5 to
1.0. Under the interest coverage ratio restriction, the Company
may not allow the ratio of adjusted earnings before interest
expense and taxes to interest expense to be less than 3.0 to
1.0. The Company is in compliance with all restrictive covenants
contained in the revolving credit facility at December 31,
2007. After consideration of the facility’s covenants and
$4.9 million of letters of credit issued under the
facility, the Company has available credit under its revolving
credit facility of $295.1 million at December 31, 2007.

 

The Company’s outstanding long-term debt consisted of its
4% Contingent Convertible Senior Subordinated Notes due 2023
totaling $200,000,000 at both December 31, 2007 and 2006.

 

      The Company’s Contingent Convertible Senior Subordinated Notes due 2023 (the “Notes”) are convertible into a total of 6,858,710 shares of Company common stock at a conversion price of $29.16 per share, provided certain contingencies are met. The Notes become convertible during any calendar quarter if the closing sale price of Company common stock is more than $34.99 for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter. Based on this formula, holders will be able to convert their Notes during the first quarter of 2007. The Notes may not be redeemed by the Company until May 30, 2008, but are redeemable at any time thereafter at par, plus accrued and unpaid interest. Holders of the Notes will have the option to require the Company to purchase their Notes at par for one day each at the end of 5, 10, and 15 years after issuance. In addition, the holders have the right to require redemption of the Notes before the specified maturity dates in the event of a change of control of the Company, as identified in the Notes’ Indenture.

     Interest expense on the Notes equaled $8.0 million during each of 2006, 2005 and 2004. Note issuance costs of approximately $6.5 million are being amortized over a five-year period. Amortization of Note issuance costs equaled $1.3 million during each of 2006, 2005 and 2004. Amortization of Note issuance costs is recorded as a component of interest expense. Unamortized note issuance costs included in other assets in the Consolidated Balance Sheets as of December 31, 2006 and December 31, 2005 equaled $1.8 million and $3.1 million.

     In 2005, the Company entered into an amended and restated agreement for its senior credit facility with its syndicate of lenders, replacing the Company’s previous $200.0 million credit facility. The credit agreement provides for a $300.0 million senior unsecured revolving credit facility. The credit facility provides for borrowings and issuance of letters of credit by the Company and its subsidiaries in various currencies for general corporate purposes, including acquisitions. The credit facility matures on July 12, 2010 and is guaranteed by the Company and certain of the Company’s domestic subsidiaries. Interest expense incurred on borrowings under the revolving credit facility will be based on the London Interbank Offered Rate. The revolving credit facility contains restrictive financial covenants on a consolidated basis including leverage and coverage ratios, utilizing measures of earnings and interest expense as defined in the revolving credit facility agreement. Under the leverage ratio restriction, the Company may not allow the ratio of total indebtedness, net of domestic cash in excess of $15.0 million, to adjusted earnings before interest expense, taxes, depreciation and amortization to exceed 3.5 to 1.0. Under the interest coverage ratio restriction, the Company may not allow the ratio of adjusted earnings before interest expense and taxes to interest expense to be less than 3.0 to 1.0. The Company is in compliance with all restrictive covenants contained in the revolving credit facility at December 31, 2006. After consideration of the facility’s covenants and $4.5 million of letters of credit issued under the facility, the Company has available credit under its revolving credit facility of $295.5 million at December 31, 2006.

29

NOTES TO CONSOLIDATED Financial Statements (continued)

     The Company’s outstanding debt was as follows at December 31:

      The Company’s Contingent Convertible Senior Subordinated Notes due 2023 (the “Notes”) are convertible into a total of 6,858,710 shares of the Company’s common stock at a conversion price of $29.16 per share during any calendar quarter, if during the preceding calendar quarter the Company common stock has traded above $34.99 for 20 out of 30 trading days for a specified period of time. The Notes may not be redeemed by the Company until May 30, 2008, but are redeemable

33

NOTES TO CONSOLIDATED Financial Statements (continued)

at any time thereafter at par, plus accrued and unpaid interest. Holders of the Notes will have the option to require the Company to purchase their Notes at par for one day each at the end of 5, 10, and 15 years after issuance. In addition, the holders have the right to require redemption of the Notes before the specified maturity dates in the event of a change of control of the Company, as identified in the Notes’ Indenture.

     Interest expense on the Notes equaled $8.0 million during both 2005 and 2004 and $4.8 million during 2003. Note issuance costs of approximately $6.5 million are being amortized over a five-year period. Amortization of Note issuance costs during 2005, 2004 and 2003 was $1.3 million, $1.3 million and $0.8 million. Amortization of Note issuance costs is recorded as a component of interest expense. Note issuance costs included in other assets in the Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004 equaled $3.1 million and $4.4 million.

     As of July 12, 2005, the Company entered into an amended and restated agreement for its senior credit facility with its syndicate of lenders, replacing the Company’s previous $200.0 million credit facility. The credit agreement provides for a $300.0 million senior unsecured revolving credit facility. The credit facility provides for borrowings and issuance of letters of credit by the Company and its subsidiaries in various currencies for general corporate purposes, including acquisitions. The credit facility matures on July 12, 2010 and is guaranteed by the Company and certain of the Company’s domestic subsidiaries. Interest expense incurred on borrowings under the revolving credit facility will be based on the London Interbank Offered Rate. The revolving credit facility contains restrictive financial covenants on a consolidated basis including leverage and coverage ratios, utilizing measures of earnings and interest expense as defined in the revolving credit facility agreement. Under the leverage ratio restriction, the Company may not allow the ratio of total indebtedness, net of domestic cash in excess of $15.0 million, to adjusted earnings before interest expense, taxes, depreciation and amortization to exceed 3.5 to 1.0. Under the interest coverage ratio restriction, the Company may not allow the ratio of adjusted earnings before interest expense and taxes to interest expense to be less than 3.0 to 1.0. The Company is in compliance with all restrictive covenants contained in the revolving credit facility at December 31, 2005. After consideration of the facility’s covenants and $4.2 million of letters of credit issued under the facility, the Company has available credit under its revolving credit facility of $295.8 million at December 31, 2005.

     The Company’s outstanding debt was as follows at December 31:

      The Company’s Contingent Convertible Senior Subordinated Notes due 2023 (the “Notes”) are convertible into a total of 6,858,710 shares of the Company’s common stock at a conversion price of $29.16 per share, provided certain contingencies are met including that Company common stock has traded above $34.99 for 20 out of 30 trading days for specified periods of time. The Notes may not be redeemed by the Company until May 30, 2008, but are redeemable at any time thereafter at par, plus accrued and unpaid interest. Holders of the Notes will have the option to require the Company to purchase their Notes at par for one day each at the end of 5, 10, and 15 years after issuance. In addition, the holders have the right to require redemption of the Notes before the specified maturity dates in the event of a change of control of the Company, as identified in the Notes’ Indenture.

     Interest expense on the Notes equaled $8.0 and $4.8 million during 2004 and 2003. Note issuance costs of approximately $6.5 million are being amortized over a five-year period. Amortization of Note issuance costs during 2004 and 2003 was $1.3 million and $0.8 million. Amortization of Note issuance costs is recorded as a component of interest expense. Note issuance costs included in other assets in the Consolidated Balance Sheets as of December 31, 2004 and December 31, 2003 equaled $4.4 million and $5.7 million.

     The Company’s revolving credit facility, which is unsecured, provides for borrowings and the issuance of letters of credit by the Company and its subsidiaries in various currencies for general corporate purposes, including acquisitions. Interest expense incurred on borrowings under the revolving credit facility will be based on the London Interbank Offered Rate. The revolving credit facility contains restrictive financial covenants on a consolidated basis including leverage and coverage ratios, utilizing measures of earnings and interest expense as defined in the revolving credit facility agreement. Under the leverage ratio restriction, the Company may not allow the ratio of total indebtedness, net of domestic cash in excess of $15.0 million, to adjusted earnings before interest expense, taxes, depreciation and amortization to exceed 3.0 to 1.0. Under the interest coverage ratio restriction, the Company may not allow the ratio of adjusted earnings before interest expense and taxes to interest expense to be less than 3.0 to 1.0. The Company is in compliance with all restrictive covenants contained in the revolving credit facility at December 31, 2004. After consideration of the facility’s covenants and $3.1 million

NOTES TO CONSOLIDATED Financial Statements (continued)

of letters of credit issued under the facility, the Company has available credit under its revolving credit facility of $196.9 million at December 31, 2004.

     The Company’s outstanding debt was as follows at December 31: