Salesforce.com 2014 Annual Report Download - page 97

The Notes consisted of the following (in thousands):
As of January 31,
2014 2013
Liability component :
Principal:
0.75% Senior Notes (1) ..................... $ 568,864 $574,890
0.25% Senior Notes (1) ..................... 1,150,000 0
Less: debt discount, net
0.75% Senior Notes (2) ..................... (26,705) (53,612)
0.25% Senior Notes (3) ..................... (103,070) 0
Net carrying amount ............................ $1,589,089 $521,278
(1) The effective interest rates of the 0.75% Senior Notes and 0.25% Senior Notes are 5.86% and 2.53%,
respectively. These interest rates were based on the interest rates of a similar liability at the time of issuance
that did not have an associated convertible feature.
(2) Included in the consolidated balance sheets within Convertible 0.75% Senior Notes (which is classified as a
current liability, as these notes were convertible) and is amortized over the life of the 0.75% Senior Notes
using the effective interest rate method.
(3) Included in the consolidated balance sheets within Convertible 0.25% Senior Notes (which is classified as a
noncurrent liability) and is amortized over the life of the 0.25% Senior Notes using the effective interest rate
method.
The total estimated fair values of the Company’s 0.75% Senior Notes and 0.25% Senior Notes at
January 31, 2014 were $1.6 billion and $1.3 billion, respectively. The fair value was determined based on the
closing trading price per $100 of the 0.75% Senior Notes and 0.25% Senior Notes as of the last day of trading for
fiscal 2014.
Based on the closing price of the Company’s common stock of $60.53 on January 31, 2014, the if-converted
value of the 0.75% Senior Notes exceeded their principal amount by approximately $1.0 billion and the if-
converted value of the 0.25% Senior Notes was less than their principal amount.
Through the filing of this Form 10-K, the Company has received conversion notices on our 0.75% Senior
Notes for approximately $280.0 million in aggregate principal balance that the Company will settle in fiscal
2015.
Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes, the Company entered
into convertible note hedge transactions with respect to its common stock (the “Note Hedges”).
(in thousands, except for shares) Date Purchase Shares
0.75% Note Hedges ...................... January 2010 $126,500 26,943,812
0.25% Note Hedges ...................... March 2013 $153,800 17,308,880
The Note Hedges cover shares of the Company’s common stock at a strike price that corresponds to the
initial conversion price of the respective Notes, also subject to adjustment, and are exercisable upon conversion
of the Notes. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to
reduce the potential economic dilution upon conversion of the Notes in the event that the market value per share
of the Company’s common stock, as measured under the Notes, at the time of exercise is greater than the
conversion price of the Notes. The Note Hedges are separate transactions and are not part of the terms of the
Notes. Holders of the Notes will not have any rights with respect to the Note Hedges. The Company initially
recorded a deferred tax asset of $51.4 million in connection with the 0.75% Note Hedges. The Note Hedges do
not impact earnings per share.
93