Shutterfly 2013 Annual Report Download - page 103
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As of December 31, 2013, the Notes are not yet convertible.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity
components. The carrying amount of the liability component was calculated by measuring the 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 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 Notes. 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 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 liability component, totaling $6.4 million, are being amortized to expense over the term
of the Notes, and issuance costs attributable to the equity component, totaling $1.7 million, were netted
with the equity component in stockholders’ equity. Additionally, the Company recorded a deferred tax
asset of $0.6 million on a portion of the equity component transaction costs which are deductible for tax
purposes.
Concurrently with the Note issuance, the Company repurchased 0.6 million shares of common stock
for approximately $30.0 million.
The Notes consist of the following (in thousands):
As of
December 31, 2013
Liability component:
Principal ....................................................... $ 300,000
Less: debt discount, net of amortization ................................ (56,507)
Net carrying amount ................................................ $ 243,493
Equity component(1) ............................................... $ 63,510
(1) Recorded in the consolidated balance sheets within additional paid-in capital, net of the
$1.7 million issuance costs in equity.
The following table sets forth total interest expense recognized related to the Notes (in thousands):
Year Ended
December 31, 2013
0.25% coupon .................................................... $ 469
Amortization of debt issuance costs ..................................... 705
Amortization of debt discount ......................................... 7,002
$ 8,176
As of December 31, 2013, the fair value of the Notes, which was determined based on inputs that are
observable in the market or that could be derived from, or corroborated with, observable market data,
including our stock price, interest rates and credit spread, (Level 2) and carrying value of debt instruments
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