Debt

2.25% Convertible Senior Notes Due 2023

In November 2018, we issued $150.0 million aggregate principal amount of 2.25% convertible senior notes due 2023 in a private placement pursuant to Rule 144A of the Securities Act of 1933, as amended. Of the $145.4 million total net proceeds, we used $40.0 million for concurrent stock repurchases. The 2023 Notes are senior unsecured obligations and were issued at par with interest payable semiannually in arrears on May 15 and November 15 of each year, commencing May 15, 2019. The 2023 Notes will mature on November 15, 2023. The initial conversion rate is 28.0128 shares of common stock per $1,000 principal amount of the 2023 Notes, which is equivalent to an initial conversion price of approximately $35.70 per share of common stock. Upon conversion of the 2023 Notes, holders will receive cash, shares of common stock or a combination thereof, at our election. Our intent is to settle the principal amount of the 2023 Notes in cash upon conversion. If the conversion value exceeds the principal amount, we intend to deliver shares of our common stock for our conversion obligation in excess of the aggregate principal amount. As of December 31, 2018, none of the conditions allowing holders of the 2023 Notes to convert had been met.

The 2023 Notes are not redeemable prior to November 22, 2021. We may redeem for cash all or any portion of the notes, at our option, on or after November 22, 2021 if the last reported sale price of our 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 (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide a redemption notice at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If we undergo a “fundamental change,” as defined in the indenture governing the 2023 Notes, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their 2023 Notes. The fundamental change repurchase price will be 100% of the principal amount of the 2023 Notes to be repurchased, plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date.

Throughout the term of the 2023 Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the 2023 Notes will not receive any cash payment representing accrued and unpaid interest upon conversion. Holders may convert their 2023 Notes only under the following circumstances:


•	if the last reported sale price of our 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 conversion price on each applicable trading day;


•	during the five business day period after any five consecutive trading day period (“Notes Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the Note Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;


•	if we call any or all of the notes for redemption at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;


•	upon the occurrence of specified corporate events;


•	on or after May 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances.

We separated the 2023 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the 2023 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized as interest expense over the term of the 2023 Notes using the effective interest method with an effective interest rate of 6.75% per annum (7.36% inclusive of debt issuance costs). The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

We allocated the total transaction costs incurred in the issuance of the 2023 Notes to the liability and equity components based on their relative values. Issuance costs of $3.7 million attributable to the $122.0 million liability component are being amortized to expense over the term of the Notes, and issuance costs of $0.9 million attributable to the $28.0 million equity component were offset against the equity component in stockholders’ equity. Additionally, we recorded a deferred tax liability of $6.6 million on the debt discount, which is not deductible for tax purposes.

0.75% Convertible Senior Notes Due 2019

In September 2014, we completed a private placement of $345.0 million principal amount of 0.75% convertible senior notes due 2019 in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from this offering were $336.3 million, after deducting the initial purchasers’ commissions and the offering expenses. We used $29.4 million of the net proceeds to purchase the Note Hedges and the Warrant transactions described below.

The 2019 Notes are senior unsecured obligations with interest payable semiannually in arrears on March 1 and September 1 of each year, commencing March 1, 2015. The Notes are not callable and will mature on September 1, 2019, unless previously purchased or converted in accordance with their terms prior to such date. Holders of the 2019 Notes who convert in connection with a “fundamental change,” as defined in the indenture governing the 2019 Notes (“2019 Indenture”), may require us to purchase for cash all or any portion of their Notes at a purchase price equal to 100 percent of the principal amount of the 2019 Notes to be repurchased, plus accrued and unpaid interest, if any.

The initial conversion rate is 18.9667 shares of common stock per $1,000 principal amount of the 2019 Notes, which is equivalent to an initial conversion price of approximately $52.72 per share of common stock. Upon conversion of the Notes, holders will receive cash, shares of common stock or a combination thereof, at our election. Our intent is to settle the principal amount of the 2019 Notes in cash upon conversion. If the conversion value exceeds the principal amount, we intend to deliver shares of our common stock for our conversion obligation in excess of the aggregate principal amount. As of December 31, 2018, none of the conditions allowing holders of the 2019 Notes to convert had been met.

Throughout the term of the 2019 Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the 2019 Notes will not receive any cash payment representing accrued and unpaid interest upon conversion. Holders may convert their 2019 Notes only under the following circumstances:


•	if the last reported sale price of our 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 conversion price on each applicable trading day;


•	during the Notes Measurement Period in which the “trading price” (as the term is defined in the 2019 Indenture) per $1,000 principal amount of notes for each trading day of such Notes Measurement Period was less than 98% of the product of the last reported stock price on such trading day and the conversion rate on each such trading day;


•	upon the occurrence of specified corporate events; or


•	at any time on or after March 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date.

We separated the 2019 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the 2019 Notes as a whole. The debt discount is amortized as interest expense over the term of the 2019 Notes using the effective interest method with an effective interest rate of 4.98% per annum (5.46% inclusive of debt issuance costs). The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

We allocated the total transaction costs incurred in the issuance of the 2019 Notes to the liability and equity components based on their relative values. Issuance costs of $7.0 million attributable to the $281.4 million liability component are being amortized to expense over the term of the 2019 Notes, and issuance costs of $1.6 million attributable to the $63.6 million equity component were offset against the equity component in stockholders’ equity. Additionally, we recorded a deferred tax liability of $23.7 million on the debt discount, which is not deductible for tax purposes.

Our Notes are summarized as follows (in thousands):



	As of December 31,
	2018
2023 Notes
Principal amount	$	150,000
Debt discount, net of amortization	(27,653		)
Debt issuance costs, net of amortization	(3,659		)
Liability component	$	118,688
Equity component	$	28,045
Less: debt issuance costs allocated to equity	(853		)
Tax effects	(6,619		)
Equity component, net	$	20,573



	As of December 31,
	2018			2017
2019 Notes
Principal amount	$	345,000		$	345,000
Debt discount, net of amortization	(9,366		)	(23,178		)
Debt issuance costs, net of amortization	(1,360		)	(2,865		)
Liability component	$	334,274		$	318,957
Equity component	$	63,643		$	63,643
Less: debt issuance costs allocated to equity	(1,582		)	(1,582		)
Greenshoe option value	568			568
Tax effects	485			485
Equity component, net	$	63,114		$	63,114

Interest expense recognized related to the Notes was as follows (in thousands):



	Year Ended December 31,
2023 Notes	2018
2.25% Coupon	$	281
Amortization of debt issuance costs	52
Amortization of debt discount	392
Interest expense on 2023 Notes	$	725



	Year Ended December 31,
2019 Notes	2018		2017		2016
0.75% coupon	$	2,595	$	2,580	$	2,588
Amortization of debt issuance costs	1,505		1,536		1,350
Amortization of debt discount	13,812		12,937		12,400
Interest expense on 2019 Notes	$	17,912	$	17,053	$	16,338

Note Hedges

We paid an aggregate of $63.9 million for our 2019 Note Hedges in September 2014. The 2019 Note Hedges will expire upon maturity of the 2019 Notes. The 2019 Note Hedges are intended to offset the potential dilution upon conversion and/or offset any cash payments we are required to make in excess of the principal amount upon conversion of the Notes in the event that the market value per share of our common stock, as measured under the terms of the 2019 Note Hedges, is greater than the strike price of the 2019 Note Hedges. The strike price of the 2019 Note Hedges initially corresponds to the conversion price of the 2019 Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion price of the 2019 Notes. The Note 2019 Hedges are separate transactions and are not part of the 2019 Notes. Holders of the 2019 Notes will not have any rights with respect to the Note Hedges.

Warrants

Concurrently with entering into the 2019 Note Hedges, we separately entered into warrant transactions (“Warrants”), whereby we sold warrants to acquire shares of our common stock at a strike price of $68.86 per share. We received aggregate proceeds of $34.5 million from the sale of the Warrants. If the average market value per share of our common stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our earnings per share. The Warrants will expire in December 2019 and are separate transactions that are not part of the 2019 Notes or the 2019 Note Hedges and are accounted for as a component of additional paid-in capital. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.

Revolving Credit Agreement

On January 2, 2019, we entered into a 5-year $150 million revolving credit agreement with an option for an additional $50 million, subject to certain requirements. Interest is variable with a premium applied to an index rate. The amount of the premium varies based on our net leverage ratio. Interest is due monthly on any borrowings, and a commitment fee is assessed on the portion of the facility that is not utilized. This credit facility is secured by substantially all of our domestic assets and the pledge of 65% of the stock of our foreign subsidiaries. The agreement contains various affirmative and negative covenants, as well as three financial covenants based on leverage and interest coverage ratios.

The issuance cost of $0.8 million incurred on this facility will be recorded in other long-term assets and will be amortized on a straight-line basis over the 5-year term of this agreement. There were no initial borrowings made under the facility at closing.