Convertible Senior Notes

On November 12, 2014, the Company issued $1,322.5 million aggregate principal amount of convertible senior notes (the “Notes”). The Notes mature on November 1, 2019, unless converted, and bear interest at a rate of 0.50% payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2015.

The Notes are convertible at an initial conversion rate of 3.3951 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $294.54 per share of common stock. Holders may convert their notes under various circumstances and upon the occurrence of specified corporate events. On or after May 1, 2019, up until the close of business on the second trading day immediately preceding the maturity date, a holder may convert all or any portion of its notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election. The Company intends to settle the principal and interest due on the Notes in cash.

The Notes consisted of the following (in thousands):



	June 30, 2016			December 31, 2015
Liability:
Principal	$	1,322,500		$	1,322,500
Less: debt discount, net of amortization	(172,368		)	(195,966		)
Net carrying amount	$	1,150,132		$	1,126,534

Equity	$	230,191		$	230,191

The Company recognized interest expense on the Notes as follows (in thousands, except for percentages):



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Contractual interest expense based on 0.50% per annum	$	1,653		$	1,672		$	3,306		$	3,325
Amortization of debt discount and issuance costs	11,868			11,322			23,598			22,511
Total	$	13,521		$	12,994		$	26,904		$	25,836
Effective interest rate of the liability component	4.7		%	4.7		%	4.7		%	4.7		%

The total estimated fair value of the Notes as of June 30, 2016, was $1,306.1 million. The fair value was determined based on the closing trading price of the Notes as of the last day of trading for the period. The Company considers the fair value of the Notes to be a Level 2 measurement due to the limited trading activity of the Notes.

Based on the closing price of our Class A common stock of $189.25 on June 30, 2016, the if-converted value of the Notes was less than the principal amount.

The Notes will have no impact to diluted earnings per share until the average price of our Class A common stock during the reporting period exceeds the conversion price of $294.54 per share because the principal amount of the Notes is intended to be settled in cash upon conversion.

Note Hedges and Warrants

Concurrently with the issuance of the Notes, the Company purchased options (“Note Hedges”) with respect to its Class A common stock for $248.0 million with certain bank counterparties. The Note Hedges cover up to 4,490,020 shares of the Company's Class A common stock at a strike price of $294.54 per share, which corresponds to the initial conversion price of the Notes, and are exercisable by the Company upon conversion of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The Note Hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Note Hedges.

Concurrently with the issuance of the Notes, the Company sold warrants to bank counterparties for total proceeds of $167.3 million that provides the counterparties with the right to buy up to 4,490,020 shares of our Class A common stock at a strike price of $381.82 per share. The warrants are separate transactions and are not part of the Notes or Note Hedges. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.

The warrants will have a dilutive effect when the average share price exceeds the warrant’s strike price of $381.82 per share, which would result in actual dilution of approximately 115,000 shares at a common stock price of $391.82.