Convertible Senior Notes, Net | Convertible Senior Notes, Net Convertible Senior Notes In June 2013, we issued 0.75% convertible senior notes due July 15, 2018, with a principal amount of $350 million (“2018 Notes”). The 2018 Notes were unsecured, unsubordinated obligations, and interest was payable in cash in arrears at a fixed rate of 0.75% on January 15 and July 15 of each year. During the second quarter of fiscal 2019, the 2018 Notes were converted by note holders and we repaid the $350 million principal balance in cash. We also distributed approximately 1.5 million shares of our Class A common stock to note holders during the second quarter of fiscal 2019, which represents the conversion value in excess of the principal amount. In June 2013, we issued 1.50% convertible senior notes due July 15, 2020, with a principal amount of $250 million . The 2020 Notes are unsecured, unsubordinated obligations, and interest is payable in cash in arrears at a fixed rate of 1.50% on January 15 and July 15 of each year. The 2020 Notes mature on July 15, 2020, unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2020 Notes prior to maturity. In September 2017, we issued 0.25% convertible senior notes due October 1, 2022, with a principal amount of $1.15 billion . The 2022 Notes are unsecured, unsubordinated obligations, and interest is payable in cash in arrears at a fixed rate of 0.25% on April 1 and October 1 of each year. The 2022 Notes mature on October 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2022 Notes prior to maturity. The terms of the Notes are governed by Indentures by and between us and Wells Fargo Bank, National Association, as Trustee (the “Indentures”). Upon conversion, holders of the Notes will receive cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at our election. For the 2020 Notes, the initial conversion rate is 12.2340 shares of Class A common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $81.74 per share of Class A common stock, subject to adjustment. Prior to the close of business on March 13, 2020, conversion of the 2020 Notes is subject to the satisfaction of certain conditions, as described below. For the 2022 Notes, the initial conversion rate is 6.7982 shares of Class A common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $147.10 per share of Class A common stock, subject to adjustment. Prior to the close of business on May 31, 2022, conversion of the 2022 Notes is subject to the satisfaction of certain conditions, as described below. Holders of the Notes who convert their Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indentures) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indentures), holders of the Notes may require us to repurchase all or a portion of their Notes at a price equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest. Holders of the 2020 Notes and 2022 Notes may convert all or a portion of their Notes prior to the close of business on March 13, 2020 and May 31, 2022, respectively, in multiples of $1,000 principal amount, only under the following circumstances: • if the last reported sale price of Class A common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the respective Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the respective Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate of the respective Notes on such trading day; or • upon the occurrence of specified corporate events, as noted in the Indentures. On or after March 15, 2020, for the 2020 Notes and June 1, 2022, for the 2022 Notes, holders of the respective Notes may convert their Notes at any time until the close of business on the second scheduled trading day immediately preceding the respective maturity date of their Notes. In accounting for the issuance of the Notes, we separated each of the Notes into liability and equity components. The carrying amounts of the liability components were calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity components representing the conversion option were determined by deducting the fair value of the liability components from the par value of the respective Notes. These differences represent debt discounts that are amortized to interest expense over the respective terms of the Notes using the effective interest rate method. The equity components are not remeasured as long as they continue to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, we allocated the total amount of issuance costs incurred to liability and equity components based on their relative values. Issuance costs attributable to the liability components are being amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the respective terms of the Notes. The issuance costs attributable to the equity components were netted against the respective equity components in Additional paid-in capital. For the 2018 Notes, we recorded liability issuance costs of $7 million and equity issuance costs of $2 million . Amortization expense for the liability issuance costs was $0.3 million and $0.6 million for the three- and six-month periods ended July 31, 2018. There was no related amortization expense for the three and six months ended July 31, 2019, as the 2018 Notes were converted and repaid during the second quarter of fiscal 2019. For the 2020 Notes, we recorded liability issuance costs of $5 million and equity issuance costs of $2 million . Amortization expense for the liability issuance costs was $0.2 million and $0.3 million for each of the three- and six-month periods ended July 31, 2019 , and 2018 , respectively. For the 2022 Notes, we recorded liability issuance costs of $14 million and equity issuance costs of $4 million . Amortization expense for the liability issuance costs was $0.7 million and $1.4 million for each of the three- and six-month periods ended July 31, 2019 , and 2018 , respectively. The Notes, net consisted of the following (in thousands): July 31, 2019 January 31, 2019 2020 Notes 2022 Notes 2020 Notes 2022 Notes Principal amounts: Principal $ 249,948 $ 1,150,000 $ 249,975 $ 1,150,000 Unamortized debt discount (10,987 ) (146,070 ) (16,480 ) (167,249 ) Unamortized debt issuance costs (644 ) (9,058 ) (981 ) (10,487 ) Net carrying amount $ 238,317 $ 994,872 $ 232,514 $ 972,264 Carrying amount of the equity component (1) $ 66,007 $ 219,702 $ 66,007 $ 219,702 (1) Included on the condensed consolidated balance sheets within Additional paid-in capital, net of $2 million and $4 million for the 2020 Notes and 2022 Notes, respectively, in equity issuance costs. As of July 31, 2019 , the 2020 Notes and 2022 Notes have remaining lives of approximately 11 months and 38 months , respectively. For more than 20 trading days during the 30 consecutive trading days ended April 30, 2018, July 31, 2018, October 31, 2018, January 31, 2019, April 30, 2019, and July 31, 2019 , the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the 2020 Notes. As a result, the 2020 Notes were convertible at the option of the holders during the second, third, and fourth quarter of fiscal 2019, the first and second quarter of fiscal 2020, and will continue to be convertible during the third quarter of fiscal 2020. Accordingly, the 2020 Notes are classified as current on the condensed consolidated balance sheet as of July 31, 2019 . From August 1, 2019, through the date of this filing, the amount of the principal balance of the 2020 Notes that has been converted or for which conversion has been requested was not material. For more than 20 trading days during the 30 consecutive trading days ended July 31, 2019, the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the 2022 Notes. As a result, the 2022 Notes are convertible at the option of the holders during the third quarter of fiscal 2020. Accordingly, the 2022 Notes are classified as current on the condensed consolidated balance sheet as of July 31, 2019. From August 1, 2019, through the date of the filing, the note holders of 2022 Notes have not submitted requests for conversion. The effective interest rates of the liability components of the 2018 Notes, 2020 Notes, and 2022 Notes are 5.75% , 6.25% , and 4.60% , respectively. These interest rates were based on the interest rates of similar liabilities at the time of issuance that did not have associated convertible features. The following table sets forth total interest expense recognized related to the Notes (in thousands): Three Months Ended July 31, Six Months Ended July 31, 2019 2018 2019 2018 2020 Notes 2022 Notes 2018 Notes 2020 Notes 2022 Notes 2020 Notes 2022 Notes 2018 Notes 2020 Notes 2022 Notes Contractual interest expense $ 938 $ 719 $ 540 $ 938 $ 719 $ 1,875 $ 1,438 $ 1,196 $ 1,875 $ 1,438 Interest cost related to amortization of debt issuance costs 168 715 289 169 715 337 1,429 641 337 1,429 Interest cost related to amortization of the debt discount 2,768 10,650 3,567 2,601 10,175 5,493 21,179 7,850 5,162 20,236 We capitalized interest costs related to the Notes of $2 million for each of the three-month periods ended July 31, 2019, and 2018 , and $6 million and $4 million for the six months ended July 31, 2019, and 2018, respectively. Notes Hedges In connection with the issuance of the Notes, we entered into convertible note hedge transactions with respect to our Class A common stock (“Purchased Options”). The Purchased Options relating to the 2018 Notes gave us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2018 Notes, approximately 4.2 million shares of our Class A common stock for $83.28 per share, exercisable upon conversion of the 2018 Notes. During the second quarter of fiscal 2019, we received approximately 1.5 million shares of our Class A common stock from the exercise of the Purchased Options relating to the 2018 Notes. These shares were recorded as treasury stock. The Purchased Options relating to the 2020 Notes give us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2020 Notes, approximately 3.1 million shares of our Class A common stock for $81.74 per share, exercisable upon conversion of the 2020 Notes. The Purchased Options relating to the 2022 Notes give us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2022 Notes, approximately 7.8 million shares of our Class A common stock for $147.10 per share, exercisable upon conversion of the 2022 Notes. The Purchased Options will expire in 2020 for the 2020 Notes and in 2022 for the 2022 Notes, if not exercised earlier. The Purchased Options are intended to offset potential economic dilution to our Class A common stock upon any conversion of the Notes. The Purchased Options are separate transactions and are not part of the terms of the Notes. We paid an aggregate amount of $144 million for the Purchased Options relating to the 2018 Notes and 2020 Notes, and $176 million for the Purchased Options relating to the 2022 Notes. The amount paid for the Purchased Options is included in Additional paid-in capital on the condensed consolidated balance sheets. Warrants In connection with the issuance of the Notes, we also entered into warrant transactions to sell warrants (“Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 4.2 million shares over 60 scheduled trading days beginning in October 2018, 3.1 million shares over 60 scheduled trading days beginning in October 2020, and 7.8 million shares over 60 scheduled trading days beginning in January 2023 of our Class A common stock at an exercise price of $107.96 , $107.96 , and $213.96 per share, respectively. If the Warrants are not exercised on their exercise dates, they will expire. If the market value per share of our Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants will have a dilutive effect on our earnings per share assuming that we are profitable. The Warrants are separate transactions and are not part of the terms of the Notes or the Purchased Options. We received aggregate proceeds of $93 million from the sale of the Warrants related to the 2018 Notes and the 2020 Notes, and $81 million from the sale of the Warrants related to the 2022 Notes. The proceeds from the sale of the Warrants are recorded in Additional paid-in capital on the condensed consolidated balance sheets. During the third and fourth quarters of fiscal 2019, Warrants related to the 2018 Notes were exercised, and we distributed approximately 1.1 million shares of our Class A common stock to warrant holders primarily utilizing treasury stock. The number of net shares distributed was determined based on the number of Warrants exercised multiplied by the difference between the exercise price of the Warrants and their daily volume weighted-average stock price. As of July 31, 2019 , there were no Warrants outstanding related to the 2018 Notes. |