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Long-Term Obligations and Commitments | 12 Months Ended
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Dec. 31, 2018
Long-Term Obligations and Commitments [Abstract] |
Long-Term Obligations and Commitments | 3. Long-Term Obligations and Commitments The carrying value of our long-term obligations was as follows (in thousands):
|  | December 31, |
|  | 2018 |  |  | 2017 |
1 percent convertible senior notes |  | $ | 568,215 |  |  | $ | 533,111 |
Long-term mortgage debt |  |  | 59,842 |  |  |  | 59,771 |
Principal balance of fixed rate note with Morgan Stanley (1) |  |  | 12,500 |  |  |  | 12,500 |
Leases and other obligations |  |  | 6,163 |  |  |  | 2,095 |
Total |  | $ | 646,720 |  |  | $ | 607,477 |
Less: current portion |  |  | (13,749 | ) |  |  | (1,621 | )
Total Long-Term Obligations |  | $ | 632,971 |  |  | $ | 605,856 |
(1) | Our $12.5 million fixed rate note with Morgan Stanley is included in our current portion of long-term obligations on our consolidated balance sheet at December 31, 2018.
Convertible Notes In November 2014, we completed a $500 million offering of convertible senior notes, which mature in 2021 and bear interest at 1 percent. We raised $487 million of proceeds, net of issuance costs. We used a substantial portion of the net proceeds from the issuance of the 1 percent convertible senior notes to repurchase $140 million in principal of our 2¾ percent convertible senior notes at a price of $441.9 million, including accrued interest. As a result, the new principal balance of the 2¾ percent notes was $61.2 million. In December 2016, we issued an additional $185.5 million of 1 percent convertible senior notes in exchange for the redemption of $61.1 million of our 2¾ percent convertible senior notes. As a result of the debt exchange we completed in December 2016, we recorded a $4.0 million non-cash loss on early retirement of debt, reflecting the early retirement of the majority of our remaining 2¾ percent convertible notes in December 2016. At December 31, 2018, we had a nominal amount of our 2¾ percent convertible senior notes outstanding. At December 31, 2018, we had the following 1 percent convertible senior notes outstanding (amounts in millions except price per share data):
|  | 1 Percent Convertible Senior Notes |
Outstanding balance |  | $ | 685.5 |
Original issue date ($500 million of principal) |  | November 2014 |
Additional issue date ($185.5 million of principal) |  | December 2016 |
Maturity date |  | November 2021 |
Interest rate |  | 1 percent |
Conversion price per share |  | $ | 66.81 |
Total shares of common stock subject to conversion |  |  | 10.3 |
Interest is payable semi-annually in arrears on May 15 and November 15 of each year for the 1 percent notes. The 1 percent notes are convertible at the option of the note holders prior to July 1, 2021 only under certain conditions. On or after July 1, 2021, the notes are initially convertible into approximately 10.3 million shares of common stock at a conversion price of approximately $66.81 per share. We will settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We may not redeem the 1 percent notes prior to maturity, and no sinking fund is provided for them. If we undergo a fundamental change, holders may require us to purchase for cash all or any portion of their 1 percent notes at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date. We account for our convertible notes using an accounting standard that requires us to assign a value to our convertible debt equal to the estimated fair value of similar debt instruments without the conversion feature and to record the remaining portion in equity. As a result, we recorded our convertible notes at a discount, which we are amortizing as additional non-cash interest expense over the expected life of the respective debt. We determined our nonconvertible debt borrowing rate using a combination of the present value of the debt’s cash flows and a Black-Scholes valuation model. The following table summarizes the nonconvertible borrowing rate, effective interest rate and amortization period of our debt discount for our convertible notes:
| 1 Percent Convertible Senior Notes Issued in November 2014 |  | 1 Percent Convertible Senior Notes Issued in December 2016
Nonconvertible debt borrowing rate | 7.4 percent |  | 6.8 percent
Effective interest rate | 7.8 percent |  | 7.2 percent
Amortization period of debt discount | 7 years |  | 5 years
Interest expense for the years ended December 31, 2018, 2017 and 2016 included $35.2 million, $32.5 million and $25.1 million, respectively, of non-cash interest expense related to the amortization of the debt discount and debt issuance costs for our convertible notes. The following table summarizes information about the equity and liability components of our outstanding 1 percent convertible notes (in thousands). We measured the fair values of the convertible notes outstanding based on quoted market prices, which is a Level 2 measurement:
|  | December 31, |
|  | 2018 |  |  | 2017 |
Fair value of outstanding notes |  | $ | 724,966 |  |  | $ | 727,420 |
Principal amount of convertible notes outstanding |  | $ | 685,450 |  |  | $ | 685,450 |
Unamortized portion of debt discount |  | $ | 110,817 |  |  | $ | 144,112 |
Long-term debt |  | $ | 568,215 |  |  | $ | 533,111 |
Carrying value of equity component |  | $ | 219,011 |  |  | $ | 219,011 |
Financing Arrangements Line of Credit Arrangement In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. We amended the credit agreement in February 2016 to increase the amount available for us to borrow. Under the amended credit agreement, we can borrow up to a maximum of $30 million of revolving credit for general working capital purposes. Under the credit agreement interest is payable monthly in arrears on the outstanding principal at a borrowing rate based on our option of:
(i) | a floating rate equal to the one-month London Interbank Offered Rate, or LIBOR, in effect plus 1.25 percent per annum;
(ii) | a fixed rate equal to LIBOR plus 1.25 percent for a period of one, two, three, four, six, or twelve months as elected by us; or
(iii) | a fixed rate equal to the LIBOR swap rate during the period of the loan.
Additionally, after June 1, 2016, we pay 0.25 percent per annum, payable quarterly in arrears, for any amount unused under the credit facility. As of December 31, 2018, we had $12.5 million in outstanding borrowings under the credit facility with a 2.31 percent fixed interest rate and a maturity date of September 2019, which we used to fund our capital equipment needs. The credit agreement includes customary affirmative and negative covenants and restrictions. We are in compliance with all covenants of the credit agreement. Research and Development and Manufacturing Facilities In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million. As a result of the purchase, we extinguished the financing liability we had previously recorded on our balance sheet. The difference between the purchase price of the facility and the carrying value of our financing liability at the time of the purchase was $7.7 million. We recognized this amount as a non-cash loss on extinguishment of financing liability for leased facility in our consolidated results of operations in the third quarter of 2017. We also purchased our manufacturing facility in July 2017 for $14.0 million. We previously accounted for the lease on this facility as an operating lease. We capitalized the purchase price of the building as a fixed asset in the third quarter of 2017. We financed the purchase of our primary R&D facility and our manufacturing facility, with mortgage debt of $51.3 million and $9.1 million, respectively. Our primary R&D facility mortgage has an interest rate of 3.88 percent. Our manufacturing facility mortgage has an interest rate of 4.20 percent. During the first five years of both mortgages we are only required to make interest payments. Both mortgages mature in August 2027. Maturity Schedules Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 2018 are as follows (in thousands):
2019 |  | $ | 22,067 |
2020 |  |  | 9,330 |
2021 |  |  | 694,774 |
2022 |  |  | 2,809 |
2023 |  |  | 3,494 |
Thereafter |  |  | 68,108 |
Subtotal |  | $ | 800,582 |
Less: current portion |  |  | (12,890 | )
Less: fixed and determinable interest |  |  | (41,837 | )
Less: unamortized portion of debt discount |  |  | (111,426 | )
Plus: Deferred rent |  |  | 4,960 |
Total |  | $ | 639,389 |
Operating Leases Ionis Leases We lease a facility adjacent to our manufacturing facility that has laboratory and office space that we use to support our manufacturing facility. We lease this space under a non-cancelable operating lease with an initial term ending in June 2021 and an option to extend the lease for up to two five-year periods. Additionally, we lease office space that we sublease to Akcea. We lease this space under a non-cancelable operating lease with an initial term ending in June 2023 and an option to extend the lease for one five-year period. The sublease with Akcea is eliminated in our consolidated financial statements. We also lease office equipment under non-cancelable operating leases with terms through January 2021. Akcea Lease On April 5, 2018, Akcea entered into an operating lease agreement for office space located in Boston, Massachusetts for its new corporate headquarters. The lease commencement date was August 15, 2018 and Akcea took occupancy in September 2018. Akcea is leasing this space under a non-cancelable operating lease with an initial term ending after 123 months and an option to extend the lease for an additional five-year term. Under the lease agreement, Akcea received a three-month free rent period, which commenced on August 15, 2018, and a tenant improvement allowance up to $3.8 million. Akcea provided the lessor with a letter of credit to secure its obligations under the lease in the initial amount of $2.4 million, to be reduced to $1.8 million on the third anniversary of the rent commencement date and to $1.2 million on the fifth anniversary of the rent commencement date if Akcea meets certain conditions set forth in the lease at each such time. The letter of credit amount is included in deposits and other assets in our consolidated balance sheet. Annual future minimum payments under our operating leases as of December 31, 2018 are as follows (in thousands):
|  | Operating Leases |
2019 |  | $ | 3,129 |
2020 |  |  | 3,008 |
2021 |  |  | 2,725 |
2022 |  |  | 2,539 |
2023 |  |  | 2,505 |
Thereafter |  |  | 11,862 |
Total minimum payments |  | $ | 25,768 |
Rent expense was $2.6 million, $1.7 million and $2.0 million for the years ended December 31, 2018, 2017 and 2016. We recognized rent expense on a straight line basis over the lease term for the lease on our building adjacent to our manufacturing facility, the office building that Akcea subleases and Akcea’s office space, which resulted in a deferred rent balance of $5.0 million and $0.1 million at December 31, 2018 and 2017, respectively.

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- Definition The entire disclosure for debt and capital lease obligations can be reported. 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. Also includes descriptions and amounts of capital leasing arrangements that consist of direct financing, sales type and leveraged leases. Disclosure may include the effect on the balance sheet and the income statement resulting from a change in lease classification for leases that at inception would have been classified differently had guidance been in effect at the inception of the original lease. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 Reference 2: 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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