NOTE 8. DEBT

On September 9, 2014, the Company issued $345.0 million aggregate principal amount of the 2021 Notes in a public offering. The convertible debt offering resulted in net proceeds of $334.2 million after deducting the underwriting discount and offering expenses of $10.4 million and $0.4 million, respectively.

The 2021 Notes were issued pursuant to an indenture, as supplemented by a supplemental indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee), and mature on September 1, 2021, unless earlier converted, redeemed or repurchased. The 2021 Notes bear interest at the rate of 2.50% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning March 1, 2015.

Upon the occurrence of certain circumstances, holders may convert their 2021 Notes prior to the close of business on the business day immediately preceding March 1, 2021. On or after March 1, 2021, until the close of business on the second trading day immediately preceding the maturity date, holders may surrender their 2021 Notes for conversion at any time. Upon conversion, the Company will pay or deliver, at its option, cash, shares of its common stock or a combination of cash and shares of its common stock. The initial conversion rate of 51.9852 shares of common stock per $1,000 principal amount of 2021 Notes is equivalent to a conversion price of approximately $19.24 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of certain events.

In addition, upon the occurrence of certain events defined in the indenture as a fundamental change, holders of the 2021 Notes may require us to purchase for cash all or any portion of their 2021 Notes at a purchase price equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.

The 2021 Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, since the 2021 Notes can be settled in cash, shares of common stock or a combination of cash and shares of common stock at the Company's option, the Company is required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The effective interest rate used in determining the liability component of the 2021 Notes was 9.34%. This resulted in the recognition of $230.0 million as the liability component net of a $115.1 million debt discount with a corresponding increase to paid-in capital representing the equity component of the 2021 Notes. The underwriting discount of $10.4 million and offering expenses of $0.4 million were allocated between debt issuance costs and equity issuance costs in proportion to the allocation of the proceeds. Debt issuance costs of $7.1 million are included in "Other assets" on the consolidated balance sheets as of the issuance date. Equity issuance costs of $3.7 million related to the convertible debt offering were recorded as an offset to additional paid-in capital.

The Company recognized a net deferred tax liability of $41.9 million created by the book-tax basis difference for the liability component of our convertible debt offering. The deferred tax liability has been offset within the applicable "Deferred tax assets" sections of the consolidated balance sheets and, under the applicable accounting guidance, a corresponding off-set was recorded to additional paid-in capital on the accompanying consolidated balance sheets. The net deferred tax liability will be reduced and a deferred tax benefit will be recognized as the debt discount is amortized over the life of the instrument.

The following is a summary of the liability component of the 2021 Notes as of December 31, 2014 (in thousands):

	2014
Net carrying amount of the liability component	$	229,891
Unamortized discount of the liability component		115,109

Principal amount of the 2021 Notes	$	345,000

The debt discount and debt issuance costs will be amortized as interest expense through September 2021. The following is a summary of interest expense for the 2021 Notes at December 31, 2014 (in thousands):

	2014
Stated coupon interest	$	2,683
Amortization of debt discount and debt issuance costs		4,200

Total interest expense	$	6,883

The balance of unamortized debt discount and debt issuance costs was $121.8 million of which $115.1 million is included in "Senior Convertible Notes" and $6.7 million is included within "Other assets" as of December 31, 2014 on the accompanying consolidated balance sheets.