Crucial 2014 Annual Report Download - page 69

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Pursuant to the terms of the Sponsor Agreement, we entered into a series of agreements with the MMJ Companies,
including supply agreements, research and development services agreements and general services agreements, which are
intended to generate operating cash flows to meet the requirements of the MMJ Companies' businesses, including the funding
of the MMJ Creditor Installment Payments.
Capital Lease Obligations
We have various capital lease obligations due in periodic installments with a weighted-average remaining term of 4.1 years
as of August 28, 2014. In 2013, we received $126 million in proceeds from equipment sale-leaseback transactions and as a
result recorded capital lease obligations aggregating $126 million at a weighted-average effective interest rate of 4.3%, payable
in periodic installments through July 2017.
Convertible Notes With Debt and Equity Components
Accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion require
the debt and equity components to be separately accounted for in a manner that reflects a nonconvertible borrowing rate when
interest expense is recognized in subsequent periods. The amount initially recorded as debt is based on the fair value of the
debt component as a standalone instrument, determined using an interest rate for similar nonconvertible debt issued by entities
with credit ratings similar to ours at the time of issuance. The difference between the debt recorded at inception and its
principal amount is accreted to principal through interest expense through the estimated life of the note.
The terms of our convertible notes give holders the right to require us to repurchase all or a portion of their notes at a date
or dates earlier than the contractual maturity of the notes or upon the occurrence of certain events or circumstances. In these
cases, we amortize any initial debt discount or imputed interest over the period from issuance of the notes through the earliest
date that holders can require us to repurchase all or a portion of their notes. As a result, the period of amortization can be
significantly shorter than the contractual maturity. (See "Holder Put Date" in the table below.)
As of August 28, 2014, the trading price of our common stock was higher than the initial conversion prices of all of our
outstanding convertible notes. As a result, the conversion values were in excess of principal amounts for such notes. The
following table summarizes certain features of our convertible notes outstanding as of August 28, 2014:
Holder Put
Date Outstanding Principal Underlying Shares
Initial
Conversion
Price Per
Share
Conversion
Price Per
Share
Threshold(1)
Conversion
Value in
Excess of
Principal(2)
2032C Notes May 2019 $ 362 38 $ 9.63 $ 12.52 $ 873
2032D Notes May 2021 344 34 9.98 12.97 785
2033E Notes February 2018 300 27 10.93 14.21 600
2033F Notes February 2020 300 27 10.93 14.21 600
2043G Notes(3) November 2028 1,025 35 29.16 37.91 128
$ 2,331 161 $ 2,986
(1) Holders have the right to convert all or a portion of their notes at a date or dates earlier than the contractual maturity
if, during any calendar quarter, the closing price of our common stock for at least 20 trading days in the 30 consecutive
trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the initial
conversion price.
(2) Based on our closing share price of $32.81 as of August 28, 2014.
(3) The original principal amount of $820 million accretes up to $917 million in November 2028 and $1.03 billion at
maturity in 2043.