Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk has not changed materially from that disclosed in Part I, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020, other than as set forth below.
During the first quarter of 2021, we issued $575 million of 2026 Convertible Notes. Holders may convert the 2026 Convertible Notes prior to maturity upon the occurrence of certain circumstances. Upon conversion, holders of the 2026 Convertible Notes will receive cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election.
Concurrently with the issuance of the 2026 Convertible Notes, we entered into convertible note hedges and warrants as discussed further in Footnote 13 “Debt” to these Financial Statements. Taken together, these separate transactions were intended to reduce the potential economic dilution to our common stock from the conversion of the 2026 Convertible Notes.
The 2026 Convertible Notes have a fixed annual interest rate of 0.00 percent and, therefore, we do not have economic interest rate exposure on our 2026 Convertible Notes. However, the fair market value of the 2026 Convertible Notes is exposed to interest rate risk. Generally, the fair market value of the 2026 Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the 2026 Convertible Notes is affected by our stock price and will increase as our stock price increases and decrease as our stock price decreases. The net carrying value of the 2026 Convertible Notes was $455 million as of September 30, 2021. This represents the liability component of the principal balance of the 2026 Convertible Notes, net of unamortized debt discount and issuance costs, as of September 30, 2021. The total estimated fair market value of the 2026 Convertible Notes was $648 million as of September 30, 2021, and the fair market value was determined based on the quoted market price of the 2026 Convertible Notes in an over-the-counter market as of the last day of trading for the quarter ended September 30, 2021. For further information see Footnote 7 “Financial Instruments” and Footnote 13 “Debt” to these Financial Statements.
During the second quarter of 2021, we issued $500 million of 2029 Notes. During the third quarter of 2021, we redeemed, prior to maturity, a total of $750 million of our 2026 Notes ($500 million in July and the remaining $250 million in September). Refer to Footnote 13 “Debt” to these Financial Statements for additional information, including our redemption, prior to maturity, of $250 million of our 2025 Notes subsequent to the end of the third quarter.
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