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Debt | 6 Months Ended
--- | ---
Jun. 30, 2020
Debt Disclosure [Abstract] |
Debt |
4. Debt
Senior Convertible Notes
The carrying amounts of our senior convertible notes were as follows as of the dates indicated:
(In millions) | June 30, 2020 |  | December 31, 2019
Principal amount: |  |  |
Senior Convertible Notes due 2022 | $ | 37.2 |  |  | $ | 400.0 |
Senior Convertible Notes due 2023 | 850.0 |  |  | 850.0 |
Senior Convertible Notes due 2025 | 1,207.5 |  |  | — |
Total principal amount | 2,094.7 |  |  | 1,250.0 |
Unamortized debt discount | (414.2 | ) |  | (177.2 | )
Unamortized debt issuance costs | (21.7 | ) |  | (13.1 | )
Carrying amount of liability component | $ | 1,658.8 |  |  | $ | 1,059.7 |
Carrying amount of equity component | $ | 467.7 |  |  | $ | 242.2 |
Remaining amortization period of debt discount on the liability component: |  |  |
Senior Convertible Notes due 2022 | 1.9 years |  |  | 2.5 years |
Senior Convertible Notes due 2023 | 3.4 years |  |  | 4.0 years |
Senior Convertible Notes due 2025 | 5.4 years |  |  | * |
* Not Applicable For our senior convertible notes for which the if-converted value exceeded the principal amount, the amount in excess of principal is as follows as of the dates indicated:
(In millions) | June 30, 2020 |  | December 31, 2019
Senior Convertible Notes due 2022 | $ | 115.0 |  |  | $ | 486.2 |
Senior Convertible Notes due 2023 | 1,272.8 |  |  | 372.4 |
Total by which the notes’ if-converted value exceeds their principal amount | $ | 1,387.8 |  |  | $ | 858.6 |
The following table summarizes the components of interest expense and the effective interest rates for each of our senior convertible notes for the periods shown.
| Three Months Ended June 30, |  | Six Months Ended June 30,
(Dollars in millions) | 2020 |  | 2019 |  | 2020 |  | 2019
Cash interest expense: |  |  |  |  |  |  |
Contractual coupon interest (1) | $ | 2.4 |  |  | $ | 2.4 |  |  | $ | 4.7 |  |  | $ | 4.7 |
Non-cash interest expense: |  |  |  |  |  |  |
Accretion of debt discount | 16.5 |  |  | 11.3 |  |  | 28.3 |  |  | 22.6 |
Amortization of debt issuance costs | 1.1 |  |  | 0.9 |  |  | 2.0 |  |  | 1.8 |
Total interest expense recognized on senior notes | $ | 20.0 |  |  | $ | 14.6 |  |  | $ | 35.0 |  |  | $ | 29.1 |
Effective interest rates: |  |  |  |  |  |  |
Senior Convertible Notes due 2022 | 5.1 | % |  | 5.1 | % |  | 5.1 | % |  | 5.1 | %
Senior Convertible Notes due 2023 | 5.6 | % |  | 5.6 | % |  | 5.6 | % |  | 5.6 | %
Senior Convertible Notes due 2025 | 5.5 | % |  | * |  |  | 5.5 | % |  | * |
(1) Interest on the 2022 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year. Interest on the 2023 Notes began accruing upon issuance and is payable semi-annually on June 1 and December 1 of each year. Interest on the 2025 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year. * Not Applicable 0.75% Senior Convertible Notes due 2022 In June 2017, we completed an offering of $400.0 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.75% and a maturity date of May 15, 2022 (the 2022 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $389.0 million. The initial conversion rate of the 2022 Notes is 10.0918 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $99.09 per share, subject to adjustments. The 2022 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2022 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share. Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $72.6 million in additional paid-in-capital during 2017. No principal payments are due on the 2022 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes includes customary terms and covenants, including certain events of default after which the 2022 Notes may be due and payable immediately. Conversion Rights at the Option of the Holders In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100% of the principal amount of the 2022 Notes, plus any accrued and unpaid interest. Holders of the 2022 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate. Prior to 5:00 p.m., New York City time, on the business day immediately preceding February 15, 2022, holders of the 2022 Notes may convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:
(1) | during any calendar quarter commencing after September 30, 2017 (and only during such calendar quarter), if the last reported sale price of DexCom’s 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 applicable conversion price of the 2022 Notes on each such trading day;
(2) | during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2022 Notes for each day of that five day consecutive trading day period was less than 98% of
the product of the last reported sale price of DexCom’s common stock and the applicable conversion rate of the Notes on such trading day;
(3) | if we call any or all of the Notes for redemption, at any time prior to the close on business on the scheduled trading day immediately preceding the redemption date; or
(4) | upon the occurrence of specified corporate transactions.
On or after February 15, 2022, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2022 Notes may convert all or a portion of their notes regardless of the foregoing circumstances. Circumstance (1) listed above occurred during the quarter ended June 30, 2020. On June 29, 2020, DexCom issued a notice of redemption to the holders of its outstanding 2022 Notes which is described below. Conversion Rights at Our Option On or after May 15, 2020, DexCom may redeem for cash all or part of the remaining 2022 Notes, at its option, if the last reported sale price of our common stock has been at least 140% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. Repurchase, Conversion, and Redemption of 2022 Notes In May 2020, we used approximately $282.6 million of the net proceeds from the 2025 Notes offering described below and issued 1,953,067 shares of DexCom common stock to repurchase $260.0 million principal amount outstanding of the 2022 Notes and the associated conversion feature of the repurchased notes (which was recorded in additional paid-in capital). In addition, during the quarter ended June 30, 2020 holders of 2022 Notes with a principal amount of $102.8 million exercised their option to convert their 2022 Notes. We settled these conversions by issuing 1,037,319 shares of our common stock. As a result of the repurchase and conversions of the 2022 Notes, we recorded a $5.4 million loss on extinguishment of debt for the three and six months ended June 30, 2020. The loss on extinguishment of debt includes the unamortized debt issuance costs for the 2022 Notes. The repurchase and conversions of the 2022 Notes resulted in remaining balances of $37.2 million, $2.8 million and $0.3 million of principal outstanding, debt discount and debt issuance costs, respectively, as of June 30, 2020. On June 29, 2020, we issued a notice of redemption to the holders of our outstanding 2022 Notes pursuant to which we will redeem the outstanding 2022 Notes for cash at a price of 100% of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any, on July 31, 2020, unless earlier converted. Prior to July 31, 2020, holders of outstanding 2022 Notes are entitled to convert their 2022 Notes to shares of our common stock at a rate of 10.0918 shares per $1,000 principal amount of 2022 Notes. In the event any holder delivers a conversion notice as provided in the indenture related to the 2022 Notes, we intend to satisfy our conversion obligation by delivering shares of our common stock. From July 1, 2020 through July 24, 2020, holders of 2022 Notes with a principal amount of $32.5 million exercised their option to convert their 2022 Notes and we settled these conversions by issuing 327,834 shares of our common stock. 0.75% Senior Convertible Notes due 2023 In November 2018, we completed an offering of $850.0 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.75% and a maturity date of December 1, 2023 (the 2023 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $836.6 million. The initial conversion rate of the 2023 Notes is 6.0869 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $164.29 per share, subject to adjustments. We entered into transactions for a convertible note hedge (the 2023 Note Hedge) and warrants (the 2023 Warrants) concurrently with the issuance of the 2023 Notes. The 2023 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2023 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share. Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $174.4 million in additional paid-in capital during 2018. No principal payments are due on the 2023 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2023 Notes includes customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately. Conversion Rights at the Option of the Holders Holders of the 2023 Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the notes). We will also be required to increase the conversion rate for holders who convert their 2023 Notes in connection with certain fundamental changes occurring prior to the maturity date or following the delivery by DexCom of a notice of redemption. Holders of the 2023 Notes may convert all or a portion of their notes at their option prior to 5:00 p.m., New York City time, on the business day immediately preceding September 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances:
(1) | during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of DexCom’s 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 applicable conversion price of the 2023 Notes on each such trading day;
(2) | during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of that five-day consecutive trading day period was less than 98% of the product of the last reported sale price of DexCom’s common stock and the applicable conversion rate of the 2023 Notes on such trading day;
(3) | if we call any or all of the 2023 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
(4) | upon the occurrence of specified corporate transactions.
On or after September 1, 2023, until 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes may convert all or a portion of their notes regardless of the foregoing circumstances. Circumstance (1) listed above occurred during the quarter ended March 31, 2020 and as a result, the 2023 Notes were convertible at the option of the holder from April 1, 2020 through June 30, 2020; actual conversions during that quarter were not significant. Circumstance (1) listed above also occurred during the quarter ended June 30, 2020 and as a result, the 2023 Notes will remain convertible at the option of the holder from July 1, 2020 through September 30, 2020. Conversion Rights at Our Option DexCom may not redeem the 2023 Notes prior to December 1, 2021. On or after December 1, 2021 and prior to September 1, 2023, DexCom may redeem for cash all or part of the 2023 Notes, at its option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2023 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. 2023 Note Hedge In connection with the offering of the 2023 Notes, in November 2018 we entered into convertible note hedge transactions with two of the initial purchasers of the 2023 Notes (the 2023 Counterparties) entitling us to purchase up to 5.2 million shares of our common stock at an initial price of $164.29 per share, each of which is subject to adjustment. The cost of the 2023 Note Hedge was $218.9 million and we accounted for it as an equity instrument by recognizing $218.9 million in additional paid-in capital during 2018. The 2023 Note Hedge will expire on December 1, 2023. The 2023 Note Hedge is expected to reduce the potential equity dilution upon any conversion of the 2023 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2023 Notes if the daily volume-weighted average price per share of our common stock exceeds the strike price of the 2023 Note Hedge. The strike price of the 2023 Note Hedge initially corresponds to the conversion price of the 2023 Notes and is subject to certain adjustments under the terms of the 2023 Note Hedge. An assumed exercise of the 2023 Note Hedge by us is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share. 2023 Warrants In November 2018, we also sold warrants to the 2023 Counterparties to acquire up to 5.2 million shares of our common stock. The 2023 Warrants require net share settlement and a pro rated number of warrants will expire on each of the 60 scheduled trading days starting on March 1, 2024. We received $183.8 million in cash proceeds from the sale of the 2023 Warrants, which we recorded in additional paid-in capital during 2018. The 2023 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants. The strike price of the 2023 Warrants is initially $198.38 per share and is subject to certain adjustments under the terms of the warrant agreements. We use the treasury share method for assumed conversion of the 2023 Warrants when computing the weighted average common shares outstanding for diluted earnings per share. 0.25% Senior Convertible Notes due 2025 In May 2020, we completed an offering of $1.21 billion aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.25% and a maturity date of November 15, 2025 (the 2025 Notes). The net proceeds from the offering, after deducting initial purchasers’ discounts and estimated costs directly related to the offering, were approximately $1.19 billion. The initial conversion rate of the 2025 Notes is 1.6655 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $600.42 per share, subject to adjustments, with a maximum conversion rate of 2.3732. The 2025 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion. We use the if-converted method for assumed conversion of the 2025 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share. Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity. As a result, we recognized $289.4 million in additional paid-in-capital during 2020. No principal payments are due on the 2025 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2025 Notes includes customary terms and covenants, including certain events of default after which the 2025 Notes may be due and payable immediately. Conversion Rights at the Option of the Holders In the event of a fundamental change (as defined in the indenture related to the 2025 Notes), holders of the 2025 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100% of the principal amount of the 2025 Notes, plus any accrued and unpaid interest. Holders of the 2025 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate. Prior to 5:00 p.m., New York City time, on the business day immediately preceding August 15, 2025, holders of the 2025 Notes may convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:
(1) | during any calendar quarter commencing after September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Dexcom’s 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 applicable conversion price of the Notes on each such trading day;
(2) | during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of DexCom’s common stock and the applicable conversion rate of the Notes on such trading day;
(3) | if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
(4) | upon the occurrence of specified corporate transactions.
On or after August 15, 2025, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert all or a portion of their notes regardless of the foregoing circumstances. Conversion Rights at Our Option DexCom may not redeem the 2025 Notes prior to May 20, 2023. On or after May 20, 2023 and prior to August 15, 2025, DexCom may redeem for cash all or part of the 2025 Notes, at its option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.
Revolving Credit Agreement
Terms of the Revolving Credit Agreement On December 19, 2018, we entered into an amended and restated revolving credit agreement which was subsequently amended on May 11, 2020 (as amended, the Credit Agreement). The Credit Agreement provides for available principal amount of $200.0 million which can be increased up to $500.0 million at our option subject to customary conditions and approval of our lenders. Borrowings under the Credit Agreement are available for general corporate purposes, including working capital and capital expenditures. Information related to availability and outstanding borrowings on our Credit Agreement is as follows as of the date indicated:
(In millions) | June 30, 2020
Available principal amount | $ | 200.0 |
Letters of credit sub-facility | 10.0 |
Outstanding borrowings | — |
Outstanding letters of credit | 5.4 |
Total available balance | $ | 194.6 |
Revolving loans under the Credit Agreement bear interest at our choice of one of two base rates plus a range of applicable margin rates that are based on our leverage ratio. The first base rate is the highest of (a) the publicly announced JPMorgan Chase prime rate, (b) the federal funds rate, or (c) the overnight bank funding rate, and the applicable margin rate ranges from 0.375% to 1.000%. The second base rate is a LIBOR-based rate, and the applicable margin rate ranges from 1.375% to 2.000%. We will also pay a commitment fee of between 0.2% and 0.3%, payable quarterly in arrears, on the average daily unused amount of the revolving facility based on our leverage ratio. The Credit Agreement will mature on the earlier to occur of (i) December 19, 2023 or (ii) 91 days prior to the maturity date of the 2022 Notes or (iii) 91 days prior to the maturity date of the 2023 Notes if both (a) the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, is greater than EBITDA for the period of four consecutive fiscal quarters ending prior to such date and (b) unrestricted domestic cash on hand is less than the aggregate outstanding principal amount of the 2022 Notes or the 2023 Notes, as applicable, plus $100.0 million. Our obligations under the Credit Agreement are guaranteed by our existing and future wholly-owned domestic subsidiaries, and are secured by a first-priority security interest in substantially all of the assets of DexCom and the guarantors, including all or a portion of the equity interests of our domestic subsidiaries and first-tier foreign subsidiaries but excluding real property and intellectual property (which is subject to a negative pledge). The Credit Agreement contains covenants that limit certain indebtedness, liens, investments, transactions with affiliates, dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents, and sale and leaseback transactions of DexCom or any of its domestic subsidiaries. The Credit Agreement also requires us to maintain a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with these covenants as of June 30, 2020.

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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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