v3.22.4
DERIVATIVE FINANCIAL INSTRUMENTS
12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS DERIVATIVE FINANCIAL INSTRUMENTS
1.75% Convertible Note Hedge Transactions and Warrant Transactions
In December 2021, in connection with the 1.75% Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “1.75% Convertible Note Hedge Transactions”) with each of Bank of America, N.A., Wells Fargo Bank, National Association and Nomura Global Financial Products, Inc. (together, the “1.75% Convertible Note Hedge Counterparties”). Pursuant to the 1.75% Convertible Note Hedge Transactions, the Company acquired options to purchase the same number of shares of the Company's common stock (or 2,584,578 shares) initially underlying the 1.75% Convertible Notes at an initial strike price equal to the initial strike price of the 1.75% Convertible Notes of approximately $100.11 per share, subject to customary anti-dilution adjustments. The options expire on December 1, 2028, subject to earlier exercise.
At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “1.75% Convertible Note Warrant Transactions”) with each of the 1.75% Convertible Note Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of the Company's common stock (or 2,584,578 shares) underlying the 1.75% Convertible Notes, at an initial strike price of approximately $123.22 per share, subject to customary anti-dilution adjustments. The warrants have a final expiration date of July 25, 2029.
The Company paid $57.4 million associated with the cost of the 1.75% Convertible Note Hedge Transactions and received proceeds of $43.7 million related to the 1.75% Convertible Note Warrant Transactions. The 1.75% Convertible Note Hedge Transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 1.75% Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 1.75% Convertible Notes. However, the 1.75% Convertible Note Warrant Transactions could separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants.
As these transactions meet certain accounting criteria, the 1.75% Convertible Note Hedge Transactions and 1.75% Convertible Note Warrant Transactions are recorded in stockholders’ equity and are not accounted for as derivatives.
1.00% Convertible Note Hedge Transactions and Warrant Transactions
In January 2018, in connection with the 1.00% Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “1.00% Convertible Note Hedge Transactions”) with each of Bank of America, N.A. and Wells Fargo Bank, National Association (together, the “1.00% Convertible Note Hedge Counterparties”).
Pursuant to the 1.00% Convertible Note Hedge Transactions, the Company acquired options to purchase the same number of shares of the Company's common stock (or 1,962,790 shares) initially underlying the 1.00% Convertible Notes at an initial strike price equal to the initial strike price of the 1.00% Convertible Notes of approximately $87.89 per share, subject to customary anti-dilution adjustments. The options expire on February 1, 2023, subject to earlier exercise.
At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “1.00% Convertible Note Warrant Transactions”) with each of the 1.00% Convertible Note Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of the Company’s common stock (or 1,962,790 shares) underlying the 1.00% Convertible Notes, at an initial strike price of approximately $113.93 per share, subject to customary anti-dilution adjustments. The warrants have a final expiration date of September 20, 2023.
The Company paid $31.5 million associated with the cost of the 1.00% Convertible Note Hedge Transactions and received proceeds of $18.1 million related to the 1.00% Convertible Note Warrant Transactions. The 1.00% Convertible Note Hedge Transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 1.00% Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 1.00% Convertible Notes. However, the 1.00% Convertible Note Warrant Transactions could separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants.
As these transactions meet certain accounting criteria, the 1.00% Convertible Note Hedge Transactions and 1.00% Convertible Note Warrant Transactions are recorded in stockholders’ equity and are not accounted for as derivatives.
The 1.00% Convertible Note Hedge Transactions expired as of February 1, 2023.
Interest Rate Swaps
The Company's credit facility previously exposed the Company to risks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company previously entered into interest rate swaps, which matured in March 2022, and therefore have no further associated liability as of December 31, 2022.
The following table summarizes the fair value of derivative contracts included in the accompanying consolidated balance sheet (in thousands):
Fair value of derivative liabilities
Derivatives accounted for as cash flow hedges Balance sheet location December 31, 2022 December 31, 2021
Interest rate swaps Other long-term liabilities $   $ 1,017 
The interest rate swaps are comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves.