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Convertible Senior Notes | 6 Months Ended
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Jun. 30, 2019
Convertible Senior Notes |
8. | Convertible Senior Notes
The carrying value of the Company’s convertible senior notes is as follows:
|  | As of |
|  | June 30, |  |  | December 31, |
|  | 2019 |  |  | 2018 |
|  | (Amounts in thousands) |
2.125% convertible senior notes due 2021: |  |  |  |  |  |  |  |
Principal amount |  | $ | 114,972 |  |  | $ | 114,989 |
Unamortized debt discount |  |  | (7,882 | ) |  |  | (9,781 | )
Unamortized debt issuance costs |  |  | (1,386 | ) |  |  | (1,720 | )
Total convertible senior notes |  | $ | 105,704 |  |  | $ | 103,488 |
On May 24, 2016, the Company issued $115.0 million aggregate principal amount of its 2016 Notes. The net proceeds from the sale of the 2016 Notes, after deducting the underwriting discounts and commissions and other related offering expenses, were $111.1 million. The 2016 Notes bear interest at the rate of 2.125% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning December 1, 2016 . The 2016 Notes will mature on June 1, 2021 , unless earlier repurchased, redeemed or converted in accordance with their terms. Prior to March 1, 2021, the 2016 Notes will be convertible at the option of holders of the 2016 Notes only upon satisfaction of certain conditions and during certain periods, and thereafter, the 2016 Notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, holders of the 2016 Notes will receive shares of the Company’s common stock, cash or a combination thereof, at the Company’s election. It is the Company’s current intent and policy to settle all conversions through combination settlement, which involves satisfying the principal amount outstanding with cash and any note conversion value over the principal amount in shares of the Company’s common stock. On July 19, 2019, the Company exchanged, with a limited number of holders in privately negotiated transactions, $ 92.0 million aggregate principal amount of the existing 2016 Notes for a combination of cash and shares of the Company’s common stock. For more information on this transaction, see Note 16, “Subsequent Events – Exchange and Redemption of 2016 Notes,” below. 2016 Notes with a par value of $17,000 were submitted for conversion in the first quarter of 2019, and the conversion was settled in the second quarter. 2016 Notes with a par value of $11,000 were submitted for conversion in the fourth quarter of 2017, and this conversion was settled in the first quarter of 2018. The conversions resulted in the issuance of a nominal-amount of shares of the Company’s common stock, and the Company recorded a loss on conversion of these notes of approximately $3,000 in the second quarter of 2019 and $1,000 in the first quarter of 2018 in their consolidated statements of comprehensive income (loss). During the second quarter of 2019, the closing price of the Company’s common stock continued to exceed 130% of the conversion price of the 2016 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the 2016 Notes are convertible at the option of the holders of the 2016 Notes during the third quarter of 2019, the quarter immediately following the quarter when the conditions were met, as stated in the terms of the 2016 Notes. These terms have been met each quarter since the second quarter of 2018 and, expecting to continue meeting these terms, the Company continues to classify the carrying value of the 2016 Notes as a current liability on the Company’s consolidated balance sheet as of June 30, 2019. As of June 30, 2019, the if-converted value of the 2016 Notes exceeded the aggregate principal amount by $195.5 million. As mentioned above, $17,000 par value notes were submitted for conversion at the end of the first quarter of 2019 and settled during the second quarter. In the event the closing price conditions are met in the third quarter of 2019 or a future fiscal quarter, the 2016 Notes will be convertible at a holder’s option during the immediately following fiscal quarter. The conversion rate for the 2016 Notes will initially be 31.1813 shares of the Company’s common stock per $1,000 principal amount of 2016 Notes, which is equivalent to an initial conversion price of $32.07 per common share, and is subject to adjustment under the terms of the 2016 Notes. Holders of the 2016 Notes may require the Company to repurchase their 2016 Notes upon the occurrence of a fundamental change prior to maturity for cash at a repurchase price equal to 100% of the principal amount of the 2016 Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. Subsequent to June 5, 2019, the Company has had the ability to redeem the 2016 Notes, at its option, in whole or in part, on any business day prior to the maturity date if the last reported sale price of the Company’s 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 the Company provides written notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2016 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. The 2016 Notes contain customary terms and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the holders of at least 25% in aggregate principal amount of the outstanding 2016 Notes may declare 100% of the principal of, and any accrued and unpaid interest on, all of the 2016 Notes to be due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the 2016 Notes will become due and payable automatically. Notwithstanding the foregoing, the 2016 Notes provide that, to the extent the Company elects and for up to 270 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants consist exclusively of the right to receive additional interest on the 2016 Notes. The Company is not aware of any events of default, current events or market conditions that would allow holders to call or convert the 2016 Notes as of June 30, 2019. The cash conversion feature of the 2016 Notes required bifurcation from the 2016 Notes and was initially accounted for as an equity instrument classified to stockholders’ equity, as the conversion feature was determined to be clearly and closely related to the Company’s stock. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and asset base and with similar maturity, the Company estimated the implied interest rate, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the 2016 Notes, which resulted in a fair value of the liability component of $96.3 million upon issuance, calculated as the present value of implied future payments based on the $115 million aggregate principal amount. The equity component of the 2016 Notes was recognized as a debt discount, recorded in additional paid-in capital, and represents the difference between the aggregate principal of the 2016 Notes and the fair value of the 2016 Notes without conversion option on their issuance date. The debt discount is amortized to interest expense using the effective interest method over five years, or the life of the 2016 Notes. The Company assesses the equity classification of the cash conversion feature quarterly, and it is not re-measured as long as it continues to meet the conditions for equity classification. Interest expense recognized on the 2016 Notes for the three months ended June 30, 2019 was $0.6 million, $1.0 million and $0.2 million for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. Interest expense recognized on the 2016 Notes for the six months ended June 30, 2019 was $1.2 million, $1.9 million and $0.3 million for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. The effective interest rate on the 2016 Notes is 6.6%, which included the interest on the 2016 Notes, amortization of the debt discount and debt issuance costs. As of June 30, 2019, the carrying value of the 2016 Notes was $115.0 million and the fair value of the principal was $310.5 million. The fair value of the 2016 Notes was determined based on the most recent trade activity of the 2016 Notes as of June 30, 2019.

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- Definition The entire disclosure for long-term debt. + 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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