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CONVERTIBLE NOTES | 9 Months Ended
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Sep. 30, 2021
CONVERTIBLE NOTES [Abstract] |
CONVERTIBLE NOTES | CONVERTIBLE NOTES Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of September 30, 2021:
|  |  |  |  |  |  |  | Fair Value (2)
(In thousands) |  | Principal Amount |  | Unamortized Debt Discount and Issuance Costs |  | Net Carrying Amount |  | Amount |  | Leveling
2028 Convertible notes - 0.375% |  | $ | 1,150,000 |  |  | $ | (19,596) |  |  | $ | 1,130,404 |  |  | $ | 1,222,968 |  |  | 2
2027 Convertible notes - 0.375% |  | 747,500 |  |  | (12,257) |  |  | 735,243 |  |  | 834,285 |  |  | 2
2025 Convertible notes - 1.000% (1) |  | 315,005 |  |  | (1,901) |  |  | 313,104 |  |  | 455,204 |  |  | 2
Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of December 31, 2020:
|  |  |  |  |  |  |  | Fair Value (2)
(In thousands) |  | Principal Amount |  | Unamortized Debt Discount and Issuance Costs |  | Net Carrying Amount |  | Amount |  | Leveling
2028 Convertible notes - 0.375% |  | $ | 1,150,000 |  |  | $ | (21,878) |  |  | $ | 1,128,122 |  |  | $ | 1,526,625 |  |  | 2
2027 Convertible notes - 0.375% |  | 747,500 |  |  | (13,937) |  |  | 733,563 |  |  | 992,306 |  |  | 2
2025 Convertible notes - 1.000% (1) |  | 315,049 |  |  | (2,333) |  |  | 312,716 |  |  | 601,744 |  |  | 2
______________ (1)Based on the Company’s share price on the days leading up to September 30, 2021 and December 31, 2020, holders of the 2025 Convertible Notes have the right to convert their debentures. As a result, the 2025 Convertible Notes are included within convertible notes, net, current portion on the condensed consolidated balance sheets. Some holders did convert their debentures, resulting in a decrease of the principal amount of the 2025 Convertible Notes. (2)The fair values are based on observable market prices for this debt, which is traded in active markets and therefore is classified as a Level 2 fair value measurement. Issuances and Settlements In January 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company. In June 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2025 Notes (the “Indenture”). The January 2025 Notes and the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date) and are treated as a single series of securities. The net proceeds from the issuance of the June 2025 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company. In March 2019, the Company issued and sold $747.5 million in aggregate principal amount of 0.375% Convertible Notes (the “2027 Notes”) with a maturity date of March 15, 2027. The 2027 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The net proceeds from the issuance of the 2027 Notes were approximately $729.5 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company. The Company utilized a portion of the proceeds from the issuance of the 2027 Notes to settle a portion of the 2025 Notes in privately negotiated transactions. In March 2019, the Company used cash of $494.1 million and an aggregate of 2.2 million shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $0.7 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $187.7 million, which is reflected in accumulated deficit in the Company’s condensed consolidated balance sheets. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase. In February 2020, the Company issued and sold $1.15 billion in aggregate principal amount of 0.375% Convertible Notes (the “2028 Notes” and, collectively with the 2025 Notes and the 2027 Notes, the “Notes”) with a maturity date of March 1, 2028. The 2028 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from the issuance of the 2028 Notes were approximately $1.13 billion, after deducting underwriting discounts and commissions and the offering expenses payable by the Company. In February 2020, the Company used $150.1 million of the proceeds from the issuance of the 2028 Notes to settle $100.0 million of the 2025 Notes, of which $0.1 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $50.8 million, which is recorded in interest expense in the Company’s condensed consolidated statement of operations. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase. Summary of Conversion Features Until the six-months immediately preceding the maturity date of the applicable series of Notes, each series of Notes is convertible only upon the occurrence of certain events and during certain periods, as set forth in the Indentures filed at the time of the original offerings. On or after the date that is six-months immediately preceding the maturity date of the applicable series of Notes until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert such Notes at any time. The Notes will be convertible into cash, shares of the Company’s common stock (plus, if applicable, cash in lieu of any fractional share), or a combination of cash and shares of the Company’s common stock, at the Company’s election. It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate is 13.26, 8.96, and 8.21 shares of common stock per $1,000 principal amount for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively, which is equivalent to an initial conversion price of approximately $75.43, $111.66, and $121.84 per share of the Company’s common stock for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively. The 2025 Notes, 2027 Notes, and 2028 Notes may be convertible in up to 4.2 million, 6.7 million, and 9.4 million shares, respectively. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indentures filed at the time of the original offerings but will not be adjusted for accrued and unpaid interest. In addition, holders of the Notes who convert their Notes in connection with a “make-whole fundamental change” (as defined in the Indenture), will, under certain circumstances, be entitled to an increase in the conversion rate. If the Company undergoes a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest. Based on the closing price of the Company’s common stock of $95.45 on September 30, 2021, the if-converted values on the Company’s 2025 Notes exceed the principal amount by $83.6 million and the 2027 Notes and 2028 Notes do not exceed the principal amount. Ranking of Convertible Notes The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to each outstanding series thereof and to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (iii) are effectively junior to all of the Company’s existing and future secured indebtedness and other secured obligations, to the extent of the value of the assets securing that indebtedness and other secured obligations; and (iv) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries. Issuance costs are amortized to interest expense over the term of the Notes. The following table summarizes the original issuance costs at the time of issuance for each set of Notes:
(In thousands) |  |
January 2025 Notes |  | $ | 10,284 |
June 2025 Notes |  | 7,362 |
2027 Notes |  | 14,285 |
2028 Notes |  | 24,453 |
The Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. Interest expense includes the following:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Debt issuance costs amortization |  | $ | 1,444 |  |  | $ | 1,443 |  |  | $ | 4,284 |  |  | $ | 3,860 |
Debt discount amortization |  | 37 |  |  | 37 |  |  | 110 |  |  | 94 |
Loss on settlement of convertible notes |  | — |  |  | — |  |  | — |  |  | 50,819 |
Coupon interest expense |  | 2,566 |  |  | 2,567 |  |  | 7,699 |  |  | 7,065 |
Total interest expense on convertible notes |  | 4,047 |  |  | 4,047 |  |  | 12,093 |  |  | 61,838 |
Other interest expense |  | 633 |  |  | 431 |  |  | 1,855 |  |  | 1,544 |
Total interest expense |  | $ | 4,680 |  |  | $ | 4,478 |  |  | $ | 13,948 |  |  | $ | 63,382 |
The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the three months ended September 30, 2021 and 2020 were 1.18%, 0.68%, and 0.64% and 1.18%, 0.68%, and 0.64%, respectively. The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the nine months ended September 30, 2021 and 2020 were 1.18%, 0.67%, and 0.64% and 1.21%, 0.68%, and 0.63%, respectively. The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.30, 5.46, and 6.42 years for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

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