Citrix 2014 Annual Report Download - page 103

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-35
thereof at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued
and unpaid interest to, but excluding, the fundamental change repurchase date.
The Indenture does not contain any financial or maintenance covenants or restrictions on the payments of dividends, the
incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Indenture
contains customary terms and covenants and events of default. If an event of default (other than certain events of bankruptcy,
insolvency or reorganization involving the Company) occurs and is continuing, the Trustee by notice to the Company, or the
holders of at least 25% in principal amount of the outstanding Convertible Notes by written notice to the Company and the
Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes to be due
and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and
payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the
Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes will become due and
payable automatically. Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects and for up
to 270 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting
covenants in the Indenture consists exclusively of the right to receive additional interest on the Convertible Notes. As of
December 31, 2014, none of the conditions allowing holders of the Notes to convert had been met.
In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and
equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a
similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing
the conversion option was determined by deducting the fair value of the liability component from the face value of the
Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying amount ("debt
discount") is amortized to interest expense over the term of the Convertible Notes using the effective interest method with an
effective interest rate of 3.0 percent per annum. The equity component is not remeasured as long as it continues to meet the
conditions for equity classification.
In accounting for the transaction costs related to the Convertible Note issuance, the Company allocated the total amount
incurred to the liability and equity components based on their relative values. Issuance costs attributable to the $1.3 billion
liability component are being amortized to expense over the term of the Convertible Notes, and issuance costs attributable to
the $162.9 million equity component are included along with the equity component in stockholders' equity. Additionally, a
deferred tax liability of $8.2 million related to a portion of the equity component transaction costs which are deductible for tax
purposes is included in Other liabilities in the accompanying consolidated balance sheets.
The Convertible Notes consist of the following (in thousands):
December 31, 2014
Liability component
Principal $ 1,437,500
Less: note discount (144,547)
Net carrying amount 1,292,953
Equity component * $ 162,869
* Recorded in the consolidated balance sheet within additional paid-in capital.
The following table includes total interest expense recognized related to the Convertible Notes (in thousands):
Year ended
December 31, 2014
Contractual interest expense $ 4,792
Amortization of debt issuance costs 2,461
Amortization of debt discount 20,832
$ 28,085
See Note 5 to the Company's consolidated financial statements for fair value disclosures related to the Company's
Convertible Notes.