Salesforce.com 2016 Annual Report Download - page 108

In accounting for the transaction costs related to the 0.25% Senior Notes issuance, the Company allocated
the total amount incurred to the liability and equity components based on its relative values. Transaction costs
attributable to the liability component are being amortized to expense over the terms of the 0.25% Senior Notes,
and transaction costs attributable to the equity component were netted with the equity component in temporary
stockholders’ equity and stockholders’ equity.
The 0.25% Senior Notes consisted of the following (in thousands):
As of
January 31,
2016
January 31,
2015
Liability component :
Principal:
0.25% Senior Notes (1) ................ $1,150,000 $1,150,000
Less: debt discount, net
0.25% Senior Notes (2) ................ (54,941) (79,308)
Net carrying amount .......................... $1,095,059 $1,070,692
(1) The effective interest rates of the 0.25% Senior Notes is 2.53%. 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 0.25% 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 0.25% Senior Notes at January 31, 2016 was $1.4 billion.
The fair value was determined based on the closing trading price per $100 of the 0.25% Senior Notes as of the
last day of trading for fiscal 2016.
Based on the closing price of the Company’s common stock of $68.06 on January 29, 2016, the if-converted
value of the 0.25% Senior Notes exceeded their principal amount by approximately $28.0 million. Based on the
terms of the 0.25% Senior Notes, the Senior Notes were not convertible at any time during the fiscal year ended
January 31, 2016.
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
0.25% 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 Note Hedges do not
impact earnings per share.
101