Debt

12 Months Ended

Dec. 31, 2020

NOTE 10 — CONVERTIBLE SENIOR NOTES

In May 2020, the Company issued $260.0 million principal amount of Convertible Senior Notes due in May 2025 (Notes). The interest rates for the Notes is fixed at 3.00% per annum with interest payable semi-annually on May 15 and November 15 of each year, commencing on November 15, 2020. The Notes mature on May 15, 2025, unless earlier converted or repurchased in accordance with their terms prior to such date. Each $1,000 of principal amount of the Notes will initially be convertible into 22.8918 shares of the Company's common stock, which is equivalent to an initial conversion price of approximately $43.68 per share. The initial conversion price for each of the Notes is subject to adjustment upon the occurrence of certain specified events. On December 3, 2020, we announced that our Board declared an increased quarterly cash dividend of $0.10 per share of common stock to be paid to shareholders of record as of the close of business on December 23, 2020 with a payment date of January 14, 2021. This increase in the dividend adjusted the conversion price to $43.67 per share, or 22.9009 shares of the Company's common stock for each $1,000 of principal amount of the Notes.

Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding November 15, 2024 only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (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, and including, 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 (Measurement Period) in which the trading price (as defined in the relevant indenture governing the Notes) per $1,000 principal amount of Notes for each trading day of the 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; or

•upon the occurrence of specified corporate events as set forth in the indenture governing the Notes.

On or after November 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The Company currently intends to settle the principal amount of the Notes in cash, and settle any excess amount with shares of the Company’s common stock, upon conversion. As of December 31, 2020, the Notes were not yet convertible.

If a fundamental change (as defined in the relevant indenture governing the Notes) occurs prior to the maturity date, holders of each of the Notes may require the Company to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the Notes, the Company separated each of the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value, as of the date of issuance, of a similar debt without the conversion feature. The effective interest rate used for the liability component was 8.50%. The liability component of the Notes is recorded in long-term debt, and the interest payable within the next twelve months is recorded in accrued liabilities on the Condensed Consolidated Balance Sheets as of December 31, 2020. The carrying amount of the equity component representing the conversion feature was determined by deducting the fair value of the liability components from the total initial proceeds. The difference between the par amount of the Notes and the carrying amount of the liability component represents 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 $7.7 million of issuance costs related to the Notes, the Company allocated the total amount of issuance costs incurred to the liability and equity components in proportion to the allocation of the proceeds from issuance to the liability and equity components. Issuance costs attributable to the liability components are amortized to interest expense over the respective terms of the Notes using the effective interest rate method. The issuance costs attributable to the equity components were netted against the respective equity components in additional paid-in capital.

Issuance costs attributable to the liability component, totaling $6.0 million, are being amortized to expense over the expected life of the Notes using the effective interest method. Issuance costs attributable to the equity component related to the conversion feature, totaling $1.7 million, were netted with the equity component.

The Notes consist of the following:


	As of December 31, 2020
Liability component:
Principal	$	260,000
Unamortized debt discount	(51,352)
Unamortized debt issuance costs	(5,512)
Net carrying amount	$	203,136

Equity component:
Net carrying amount	$	41,950

The following table sets forth total interest expense recognized related to the Notes for the years ended December 31 (in thousands):


	2020		2019
Contractual interest expense	$	4,940	$	—
Amortization of debt issuance costs	531		—
Amortization of debt discount	6,002		—
Total	$	11,473	$	—

As of December 31, 2020, the remaining period over which the debt discount and debt issuance costs will be amortized was 4.4 years.

Convertible Note Hedge and Warrant Transactions

Concurrent with the offering of the Notes, the Company entered into privately negotiated convertible note hedge transactions (Convertible Note Hedge Transactions) with certain financial institutions (Option Counterparties) related to the issuance of the Notes. The Convertible Note Hedge Transactions are generally expected to reduce the potential dilution to the Company’s common stock upon any conversion of Notes or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes.

The Company also entered into separate privately negotiated warrant transactions (Warrant Transactions) with each of the Option Counterparties pursuant to which the Company issued Warrants that will be exercisable into a number of shares of the Company’s common stock at a price per share equal to $69.89, subject to certain adjustments under the terms of the Warrant Transactions. The Warrant Transactions could separately have a dilutive effect on the Company’s common stock if the market value per share of the Company’s common stock exceeds the applicable strike price of the Warrants. However, subject to certain conditions, the Company may elect to settle the Warrants in cash.

The Convertible Note Hedge Transactions and the Warrant Transactions are separate transactions, in each case, entered into by the Company with the same Option Counterparties and are not part of the terms of the Notes and will not affect any holder’s rights under the Notes. The holders of the Notes will not have any rights with respect to the Convertible Note Hedge Transactions or Warrant Transactions. The Company used approximately $34.7 million of the net proceeds of the issuance of the Notes to pay the costs of the Convertible Note Hedge Transactions, after such cost was partially offset by the proceeds to the Company from the sale of the Warrants in the Warrant Transactions. The Convertible Note Hedge Transactions and Warrant Transactions do not meet the criteria for derivative accounting as they are indexed to the Company's stock. The amounts paid for the Convertible Note Hedge Transactions and the proceeds received from the Warrant Transactions have been included as a net reduction to additional paid-in capital.

LUMINEX CORP 10-K