(14) CONVERTIBLE DEBT

2018/2020 Notes

On October 15, 2013, the Company issued $750.0 million in aggregate principal amount of senior subordinated convertible notes consisting of $375.0 million in aggregate principal amount of 0.75% senior subordinated convertible notes due in October 2018 (the 2018 Notes) and $375.0 million in aggregate principal amount of 1.50% senior subordinated convertible notes due in October 2020 (the 2020 Notes and, together with the 2018 Notes, the Notes). Net proceeds from the offering were $726.2 million.

The 2018 Notes and the 2020 Notes bear interest at a rate of 0.75% and 1.5% per year, respectively, which is payable semiannually in arrears on April 15 and October 15 of each year, beginning on April 15, 2014.

The Notes are senior unsecured obligations, and rank (i) equally to any of the Company’s existing and future unsecured senior debt, (ii) senior to any of the Company’s future indebtedness that is expressly subordinated to the Notes, and (iii) effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness. Upon the occurrence of a “fundamental change”, as defined in the indenture, the holders may require the Company to repurchase all or a portion of the Notes for cash at 100% of the principal amount of the Notes being purchased, plus any accrued and unpaid interest.

The Notes are convertible into 7,965,975 shares of the Company’s common stock under certain circumstances prior to maturity at a conversion rate of 10.6213 shares per $1,000 principal amount of the Notes, which represents a conversion price of $94.15 per share, subject to adjustment under certain conditions. Holders may convert their notes at their option at any time prior to July 15, 2018, in the case of the 2018 Notes, and July 15, 2020, in the case of the 2020 Notes, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a 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 on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of the relevant notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events.

Upon conversion, the Company may pay cash, shares of the Company’s common stock or a combination of cash and stock, as determined by the Company in its discretion.

The Company has separately accounted for the liability and equity components of the Notes by allocating the proceeds from issuance of the Notes between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include the embedded conversion option. The Company allocated $156.2 million to the equity component, net of offering costs of $5.1 million. The Company recorded a discount on the notes of $161.3 million which will be accreted and recorded as additional interest expense over the life of the Notes. Additionally, in connection with the issuance of the Notes, the Company incurred $23.8 million of issuance costs, which are being amortized and recorded as additional interest expense over the life of the Notes. The effective interest rate on the liability component of the Notes for the years ended December 31, 2015 and 2014 was 7.3% and 7.5% for the year ended December 31, 2013.

The following table summarizes the additional interest expense recognized for the accretion of the debt discount and amortization of the deferred offering costs.

	Years Ended December 31,
	2015		2014		2013
Convertible Notes due 2018
Amortization of issuance costs	$	1,921	$	1,910	$	397
Accretion of debt discount		13,633		12,963		2,620
Convertible Notes due 2020
Amortization of issuance costs		1,283		1,279		264
Accretion of debt discount		11,567		10,930		2,201
Total	$	28,404	$	27,082	$	5,482

To minimize the impact of potential dilution upon conversion of the 2018 Notes and the 2020 Notes, the Company entered into capped call transactions separate from the issuance of the Notes with certain counterparties covering 3,982,988 shares of the Company’s common stock, subject to adjustment. The capped calls have a strike price of $94.15 and a cap price of $121.05 and are exercisable when and if the Notes are converted. If upon conversion of the Notes, the price of the Company’s common stock is above the strike price of the capped calls, the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value equal to the difference between the price of the Company’s common stock at the conversion date and the strike price, multiplied by the number of shares of the Company’s common stock related to the capped calls being exercised. The Company paid $29.8 million for these capped calls transactions, which was recorded as additional paid-in capital.

2017 Notes

In April 2007, the Company sold $324.9 million in aggregate principal amount of senior subordinated convertible notes due in April 2017 (the 2017 Notes), of which $31.4 million remained outstanding at December 31, 2015. The 2017 Notes were issued at face value and bear interest at the rate of 1.875% per annum, payable semi-annually in cash. The 2017 Notes are convertible, at the option of the holder, at any time prior to maturity or redemption, into shares of the Company’s common stock at a conversion price of $20.36 per share, subject to adjustment in certain circumstances. The 2017 Notes do not include a call provision and the Company is unable to unilaterally redeem the 2017 Notes prior to maturity on April 23, 2017. The Company also must repay the 2017 Notes if there is a qualifying change in control or termination of trading of its common stock. If a change of control occurs, the Company will pay a make whole premium by increasing the conversion rate applicable to the 2017 Notes.

In connection with the placement of the 2017 Notes, the Company paid $8.5 million in offering costs, which have been deferred and are presented as a direct reduction of the outstanding 2017 Notes. The deferred offering costs are being amortized as interest expense over the life of the debt. For the year ended December 31, 2015, the Company recognized amortization expense of $0.1 million, compared to $0.1 million and $0.4 million for the years ended December 31, 2014 and 2013, respectively.

During 2015, the Company entered into separate agreements with three existing holders of its senior subordinated convertible notes due in 2017 pursuant to which such holders converted $8.1 million in aggregate principal amount of the 2017 Notes into 399,469 share of the Company’s common stock. In addition to issuing the requisite number of the Company’s common stock, the Company also made varying cash payments to the holders totaling $0.2 million in the aggregate, which was recognized as Debt Conversion Expense on the Consolidated Statement of Operations for the year ended December 31, 2015.

During 2014, the Company entered into two separate agreements with an existing holder of its senior subordinated convertible notes due in 2017 pursuant to which such holder converted $16.5 million in aggregate principal amount of the 2017 Notes into 809,351 shares of the Company’s common stock. In addition to issuing the requisite number of shares of the Company’s common stock, the Company also made varying cash payments to the holder totaling $0.7 million in aggregate, of which $0.7 million was recognized in total as Debt Conversion Expense on the Consolidated Statement of Operations for the year ended December 31, 2014.

During 2013, the Company entered into separate agreements with 18 of the existing holders of the 2017 Notes pursuant to which such holders converted $262.8 million in aggregate principal amount of the 2017 Notes into 12,906,780 shares of the Company’s common stock. In addition to issuing the requisite number of shares of the Company’s common stock pursuant to the 2017 Notes, the Company also made varying cash payments to each of the holders, totaling $14.8 million in the aggregate, of which $13.0 million was recognized in total as Debt Conversion Expense in the Company’s Consolidated Statement of Operations for the year ended December 31, 2013 and $1.8 million was for accrued interest. Additionally, the Company reclassified $2.8 million of deferred offering costs to additional paid-in capital in connection with the conversion of the 2017 Notes.

The following table summarizes information regarding the Company’s convertible debt at December 31:

	2015					2014
Convertible Notes due 2020	$	374,993				$	375,000
Unamortized discount		(65,478	)				(77,045	)
Unamortized deferred offering costs		(6,210	)				(7,493	)
Convertible Notes due 2020, net					303,305					290,462
Convertible Notes due 2018		374,980					375,000
Unamortized discount		(41,904	)				(55,537	)
Unamortized deferred offering costs		(5,415	)				(7,335	)
Convertible Notes due 2018, net					327,661					312,128
Convertible Notes due 2017		31,430					40,558
Unamortized deferred offering costs		(110	)				(246	)
Convertible Notes due 2017, net					31,320					40,312
Total convertible debt, net				$	662,286				$	642,902
Fair value of fixed rate convertible debt
Convertible Notes due in 2020 ⁽¹⁾				$	502,701				$	456,360
Convertible Notes due in 2018 ⁽¹⁾					482,584					442,448
Convertible Notes due in 2017 ⁽¹⁾					162,016					180,984
Total				$	1,147,301				$	1,079,792

(1)	The fair value of the Company’s fixed rate convertible debt is based on open market trades and is classified as Level 1 in the fair value hierarchy.

Interest expense on the Company’s convertible debt consisted of the following:

	Years Ended December 31,
	2015		2014		2013
Coupon interest	$	9,750	$	9,417	$	4,550
Amortization of issuance costs		3,294		3,332		1,053
Accretion of debt discount		25,200		23,893		4,821
Total interest expense on convertible debt	$	38,244	$	36,642	$	10,424

See Note 15 to these Consolidated Financial Statements for further discussion of the effect of conversion on net loss per common share.