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Convertible Senior Notes | 6 Months Ended
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Jun. 30, 2020
Convertible Notes Payable [Abstract] |
Convertible Senior Notes | Convertible Senior Notes In May and June 2017, we issued an aggregate of $782.5 million of 0% convertible senior notes (the “2022 Notes”), which are due June 1, 2022 (“Maturity Date”) unless earlier converted or repurchased in accordance with their terms. The 2022 Notes do not bear interest, and we cannot redeem the 2022 Notes prior to maturity. The 2022 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. Upon conversion of the 2022 Notes, we may choose to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock upon settlement. We currently intend to settle the principal amount of the 2022 Notes with cash.
| Convertible Date |  | Initial Conversion Price per Share |  | Initial Conversion Rate per $1,000 Par Value |  | Initial Number of Shares
2022 Notes | February 1, 2022 |  | $ | 134.75 |  |  | 7.42 shares |  | 5,807 |
Conversion of the 2022 Notes prior to the Convertible Date. At any time prior to the close of business on the business day immediately preceding February 1, 2022 (“Convertible Date”), holders of the 2022 Notes may convert their Notes at their option, only if one of the following conditions are met: •during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day (in each case, the Conversion Condition); or •during the five-business day period after any five-consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of the 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or •upon the occurrence of specified corporate events. Conversion of the 2022 Notes on or after the Convertible Date. On or after the Convertible Date, a holder may convert all or any portion of its Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the Maturity Date, regardless of the foregoing conditions, and such conversions will settle upon the Maturity Date. Upon settlement, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The conversion price of the 2022 Notes will be subject to adjustment in some events. Holders of the 2022 Notes who convert their 2022 Notes in connection with certain corporate events that constitute a “make-whole fundamental change” are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a “fundamental change,” holders of the 2022 Notes may require us to purchase with cash all or a portion of the 2022 Notes upon the occurrence of a fundamental change, at a purchase price equal to 100% of the principal amount of the 2022 Notes plus any accrued and unpaid special interest, if any. In accounting for the issuance of the 2022 Notes and the related transaction costs, we separated the 2022 Notes into liability and equity components. The 2022 Notes consisted of the following (in thousands):
| June 30, 2020 |  | December 31, 2019
Liability component: |  |  |
Principal | $ | 764,778 |  |  | $ | 782,491 |
Less: debt issuance cost and debt discount, net of amortization | (68,655) |  |  | (87,510) |
Net carrying amount | $ | 696,123 |  |  | $ | 694,981 |
| 2022 Notes |  |
Equity component recorded at issuance: |  |  |
Note | $ | 162,039 |  |  |
Issuance cost | (2,148) |  |  |
Net amount recorded in equity | $ | 159,891 |  |  |
The Conversion Condition for the 2022 Notes was met for all the quarters ended June 30, 2018 through June 30, 2020, except for the quarter ended December 31, 2018. Therefore, our 2022 Notes became convertible at the holders’ option beginning on July 1, 2018 and continue to be convertible through September 30, 2020, except for the quarter ended March 31, 2019 because the Conversion Condition for the 2022 Notes was not met for the quarter ended December 31, 2018. During the six months ended June 30, 2020, we paid cash to settle $18 million in principal of the 2022 Notes and the loss on the early note conversions was not material. As a result of the settlements, we also recorded a net reduction to additional paid-in capital, reflecting $23 million fair value adjustments to the settled conversion option partially offset by a $22 million benefit from the 2022 Note Hedge (as defined below). Based on conversion requests we have received through the filing date, we expect to settle in cash an aggregate amount of approximately $23 million in principal of the 2022 Notes during the third quarter of 2020. We may receive additional conversion requests that require settlement in the third quarter of 2020. We consider the fair value of the 2022 Notes at June 30, 2020 to be a Level 2 measurement. The estimated fair value of the 2022 Notes at June 30, 2020 and December 31, 2019 based on the closing trading price per $100 of the 2022 Notes was as follows (in thousands):
| June 30, 2020 |  | December 31, 2019
2022 Notes | $ | 2,244,623 |  |  | $ | 1,645,970 |
As of June 30, 2020, the remaining life of the 2022 Notes is 23 months. The following table sets forth total interest expense recognized related to the 2022 Notes (in thousands):
| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Amortization of debt issuance cost | $ | 410 |  |  | $ | 398 |  |  | $ | 823 |  |  | $ | 792 |
Amortization of debt discount | 8,078 |  |  | 7,871 |  |  | 16,235 |  |  | 15,645 |
Total | $ | 8,488 |  |  | $ | 8,269 |  |  | $ | 17,058 |  |  | $ | 16,437 |
Effective interest rate of the liability component | 4.75% |  |  |  |  |  |
Note Hedge To minimize the impact of potential economic dilution upon conversion of the 2022 Notes, we entered into convertible note hedge transactions (the “2022 Note Hedge”) with certain investment banks, with respect to our common stock concurrently with the issuance of the 2022 Notes.
| Purchase |  | Initial Shares |  | Shares as of June 30, 2020
| (in thousands) |  |  |  |
2022 Note Hedge | $ | 128,017 |  |  | 5,807 |  |  | 5,675 |
The 2022 Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial conversion price of the 2022 Notes, subject to adjustment, and are exercisable upon conversion of the 2022 Notes. If exercised, we may elect to receive cash, shares of our common stock, or a combination of cash and shares. The 2022 Note Hedge will expire upon the maturity of the 2022 Notes. The 2022 Note Hedge is intended to reduce the potential economic dilution upon conversion of the 2022 Notes in the event that the fair value per share of our common stock at the time of exercise is greater than the conversion price of the 2022 Notes. The 2022 Note Hedge is a separate transaction and is not part of the terms of the 2022 Notes. Holders of the 2022 Notes will not have any rights with respect to the 2022 Note Hedge. The 2022 Note Hedge does not impact earnings per share, as it was entered into to offset any dilution from the 2022 Notes. Warrants
| Proceeds |  | Initial Shares |  | Strike Price |  | First Expiration Date |  | Shares as of June 30, 2020
| (in thousands) |  | (in thousands) |  |  |  |  |  | (in thousands)
2022 Warrants | $ | 54,071 |  |  | 5,807 |  |  | $ | 203.40 |  |  | September 1, 2022 |  | 5,807 |
Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire, subject to adjustment, the number of shares of our common stock shown in the table above (the “2022 Warrants”). If the average market value per share of our common stock for the reporting period, as measured under the 2022 Warrants, exceeds the strike price of the respective 2022 Warrants, such 2022 Warrants would have a dilutive effect on our earnings per share to the extent we report net income. The 2022 Warrants are separate transactions and are not remeasured through earnings each reporting period. The 2022 Warrants are not part of the 2022 Notes or 2022 Note Hedge. According to the terms, the 2022 Warrants will be net share settled and automatically exercised over a 60 trading day period beginning on the first expiration date as set forth above based on the daily volume-weighted average stock prices over the same 60 trading day period. We expect to issue additional shares of our common stock in the second half of 2022 upon the automatic exercise of the 2022 Warrants. The 2022 Warrants could have a dilutive effect to the extent that the daily volume-weighted average stock prices over a 60 trading day period beginning on September 1, 2022 exceeds the strike price of the 2022 Warrants. Based on the volume-weighted average stock price on June 30, 2020, the total number of shares of our common stock to be issued upon the automatic exercise of the 2022 Warrants would be approximately 2.9 million. The actual number of shares of our common stock issuable upon the automatic exercise of the 2022 Warrants, if any, is unknown at this time. In November 2013, we issued $575 million of 0% convertible senior notes, which were earlier converted prior to and cash settled on November 1, 2018, in accordance with their terms. The related warrant transactions with certain investment banks (the “2018 Warrants”) were net share settled based on the daily volume-weighted average stock prices over a 60 trading day period beginning on the first expiration date, February 1, 2019. According to the terms of the 2018 Warrants, we issued 1.6 million and 4.3 million shares of our common stock upon the automatic exercise of a portion of the 2018 Warrants during the three and six months ended June 30, 2019, respectively. The 2018 Warrants were no longer outstanding as of June 30, 2019.

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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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