Debt

The following table presents our outstanding debt:



	June 30, 2014										September 30, 2013
	Principal		Unamortized Discount			Notes Issuance Costs			Carrying Value		Principal		Unamortized Discount			Notes Issuance Costs			Carrying Value
2015 Notes	$	287,500	$	(10,513	)	$	(1,119	)	$	275,868	$	287,500	$	(19,898	)	$	(2,176	)	$	265,426
2018 Notes	488,750		(82,813		)	(8,793		)	397,144		488,750		(96,660		)	(10,283		)	381,807
Total	$	776,250	$	(93,326	)	$	(9,912	)	$	673,012	$	776,250	$	(116,558	)	$	(12,459	)	$	647,233

2015 Convertible Senior Notes

In March 2010, we issued $287.5 million principal amount of our 2.50% convertible senior notes due April 15, 2015 (“2015 Notes”). All amounts from the issuance of the 2015 Notes were settled in April 2010.

The 2015 Notes are governed by an indenture, dated April 6, 2010 (“2015 Indenture”), between Concur and Wells Fargo Bank, National Association, as trustee. The 2015 Notes will mature on April 15, 2015, unless earlier repurchased or converted, and bear interest at a rate of 2.50% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing October 15, 2010.

The 2015 Notes are convertible into cash and up to 5.5 million shares of our common stock at an initial conversion rate of approximately 19.10 shares of common stock per $1,000 principal amount of the 2015 Notes, which represents an initial conversion price of approximately $52.35 per share, subject to adjustment. Prior to January 15, 2015, conversion is subject to the satisfaction of certain conditions set forth below. Holders of the 2015 Notes who convert their 2015 Notes in connection with a fundamental change (as defined in the 2015 Indenture) will, under certain circumstances, be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the 2015 Notes may require the Company to repurchase all or a portion of their 2015 Notes at a repurchase price equal to 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the 2015 Indenture).

Holders of the 2015 Notes may convert their 2015 Notes on or after January 15, 2015 until the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon conversion, we will satisfy our conversion obligation by delivering cash and shares of common stock, if any, based on a daily settlement amount (as defined in the 2015 Indenture). Prior to January 15, 2015, holders of the 2015 Notes may convert their 2015 Notes under any of the following conditions:

•

during any calendar quarter commencing after June 30, 2010, and only during such calendar quarter, if the last reported sale price of common stock for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;


•	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2015 Notes for each day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate on such day; or


•	upon the occurrence of specified corporate events.

Our common stock price exceeded 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the quarter ended March 31, 2014. Accordingly, the 2015 Notes were convertible at the holders’ option for the quarter ended June 30, 2014 and were classified as a current liability on the consolidated balance sheets as of March 31, 2014. As of June 30, 2014, none of the 2015 Notes have been repurchased or converted.

For at least 20 trading days during the 30 consecutive trading day period ended June 30, 2014, the Company’s common stock price exceeded 130% of the applicable conversion price on each applicable trading day. Accordingly, the 2015 Notes are convertible at the holders’ option for the quarter ending September 30, 2014. The 2015 Notes are classified as a current liability on the consolidated balance sheets as of June 30, 2014.

In accounting for the issuance of the 2015 Notes, we separated the 2015 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 excess of the principal amount of the liability component over its carrying amount (“2015 Notes Discount”) is amortized to interest expense over the term of the 2015 Notes. The remaining term of the 2015 Notes is approximately nine months at June 30, 2014. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2015 Notes as a whole.

A portion of the equity component attributable to the conversion feature of the 2015 Notes was classified in temporary equity as of June 30, 2014 and September 30, 2013. The amount classified as temporary equity was equal to the difference between the principal amount and carrying value of the 2015 Notes.

Further, in accounting for the transaction costs related to the issuance of the 2015 Notes, we allocated the total amount incurred to the liability and equity components. Transaction costs allocated to the liability component are being amortized to expense over the term of the 2015 Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital (“2015 Notes Issuance Costs”). The carrying amounts of the equity component, net of transaction costs, were $44.7 million and $34.3 million at June 30, 2014 and September 30, 2013, respectively.

The following table presents the interest expense related to the 2015 Notes for the three and nine months ended June 30, 2014 and 2013, respectively:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Contractual interest expense	$	1,797		$	1,797		$	5,391		$	5,391
Amortization of notes issuance costs	356			458			1,057			1,114
Accretion of notes discount	3,185			3,028			9,385			8,771
	$	5,338		$	5,283		$	15,833		$	15,276
Effective interest rate of the liability component	7.73		%	7.73		%	7.73		%	7.73		%

The net proceeds from the 2015 Notes were approximately $279.0 million after payment of the initial purchasers’ discounts and offering expenses. From these net proceeds, we used a net total of approximately $34.1 million, which included $60.1 million to pay for the cost of the 2015 Note Hedges, partially offset by proceeds of $26.1 million from our sale of 2015 Warrants. These transactions are defined and described in more detail below. We expect to continue to use the net proceeds of the 2015 Notes for general corporate purposes, including potential acquisitions and strategic transactions.

Based on the closing prices of the Company’s common stock of $93.34 on June 30, 2014, the if-converted value of the 2015 Notes exceeded their principal amount by approximately $225.1 million.

2015 Note Hedges

To minimize the impact of potential economic dilution upon conversion of the 2015 Notes, we entered into the 2015 Note Hedges with respect to our common stock. We paid $60.1 million for the 2015 Note Hedges. The 2015 Note Hedges cover approximately 5.5 million shares of our common stock at a strike price of $52.35 per share subject to anti-dilution adjustments and are exercisable upon conversion of the 2015 Notes. The 2015 Note Hedges will expire upon the maturity of the 2015 Notes. The 2015 Note Hedges are intended to reduce the potential economic dilution upon conversion of the 2015 Notes in the event that the market value per share of our common stock, as measured under the 2015 Notes, at the time of exercise is greater than the conversion price of the 2015 Notes.

2015 Warrants

Separately, we entered into warrant transactions, whereby we sold warrants to acquire up to 5.5 million shares of our common stock at a strike price of $73.29 per share (“2015 Warrants”), subject to anti-dilution adjustments. The 2015 Warrants will expire upon the maturity of the 2015 Notes. We received proceeds of $26.1 million from the sale of the 2015 Warrants. If the market value per share of our common stock, as measured under the 2015 Warrants, exceeds the strike price of the 2015 Warrants, the 2015 Warrants will have a dilutive effect on our net income per share. The 2015 Warrants had an anti-dilutive effect on our net loss per share for the three and nine months ended June 30, 2014 and for the nine months ended June 30, 2013.

2018 Convertible Senior Notes

During the quarter ended June 30, 2013, we issued $488.8 million principal amount of our 0.50% convertible senior notes due June 15, 2018 (“2018 Notes”). All amounts from the issuance of the 2018 Notes were settled during the quarter ended June 30, 2013.

The 2018 Notes are governed by an indenture, dated June 4, 2013 (“2018 Indenture”). The 2018 Notes will mature on June 15, 2018, unless earlier repurchased or converted, and bear interest at a rate of 0.50% per year payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2013.

The 2018 Notes are convertible into cash and up to 4.7 million shares of our common stock at an initial conversion rate of approximately 9.54 shares of common stock per $1,000 principal amount of the 2018 Notes, which represents an initial conversion price of approximately $104.85 per share, subject to adjustment. Prior to March 15, 2018, conversion is subject to the satisfaction of certain conditions set forth below. Holders of the 2018 Notes who convert their 2018 Notes in connection with a fundamental change (as defined in the 2018 Indenture) will, under certain circumstances, be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the 2018 Notes may require the Company to repurchase all or a portion of their 2018 Notes at a repurchase price equal to 100% of the principal amount of the 2018 Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the 2018 Indenture).

Holders of the 2018 Notes may convert their 2018 Notes on or after March 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon conversion, we will satisfy our conversion obligation by delivering cash and shares of common stock, if any, based on a daily settlement amount (as defined in the 2018 Indenture). Prior to March 15, 2018, holders of the 2018 Notes may convert their 2018 Notes under any of the following conditions:

•

during any calendar quarter commencing after September 30, 2013, and only during such calendar quarter, if the last reported sale price of common stock for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;


•	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2018 Notes for each day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and applicable conversion rate on such day; or


•	upon the occurrence of specified corporate events.

During the three months ended March 31, 2014, none of the above conditions were achieved. Accordingly, the 2018 Notes were not convertible at the holders’ option for the quarter ended June 30, 2014 and were classified as a non-current liability on the consolidated balance sheets as of March 31, 2014. As of June 30, 2014, none of the 2018 Notes have been repurchased or converted.

During the three months ended June 30, 2014, none of the above conditions were achieved. Accordingly, the 2018 Notes are not convertible at the holders’ option for the quarter ending September 30, 2014, and the 2018 Notes are classified as a non-current liability on the consolidated balance sheets as of June 30, 2014.

In accounting for the issuance of the 2018 Notes, we separated the 2018 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 excess of the principal amount of the liability component over its carrying amount (“2018 Notes Discount”) is amortized to interest expense over the term of the 2018 Notes. The remaining term of the 2018 Notes is approximately four years at June 30, 2014. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2018 Notes as a whole. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the 2018 Notes, we allocated the total amount incurred to the liability and equity components. Transaction costs allocated to the liability component are being amortized to expense over the term of the 2018 Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital (“2018 Notes Issuance Costs”). The carrying amount of the equity component, net of transaction costs, was $99.6 million at June 30, 2014 and September 30, 2013.

The following table presents the interest expense related to the 2018 Notes for the three and nine months ended June 30, 2014 and 2013, respectively:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Contractual interest expense	$	611		$	176		$	1,833		$	176
Amortization of notes issuance costs	502			139			1,490			139
Accretion of notes discount	4,676			1,288			13,847			1,288
	$	5,789		$	1,603		$	17,170		$	1,603
Effective interest rate of the liability component	5.75		%	5.75		%	5.75		%	5.75		%

The net proceeds from the 2018 Notes were approximately $474.9 million after payment of the initial purchasers’ discounts and offering expenses. From these net proceeds, we used a net total of approximately $34.4 million, which included $58.2 million to pay for the cost of the 2018 Note Hedges, partially offset by proceeds of $23.8 million from our sale of 2018 Warrants. These transactions are defined and described in more detail below. We expect to continue to use the net proceeds of the 2018 Notes for general corporate purposes, including potential acquisitions and strategic transactions.

Based on the closing prices of the Company’s common stock of $93.34 on June 30, 2014, the if-converted value of the 2018 Notes was less than their principal amount.

2018 Note Hedges

To minimize the impact of potential economic dilution upon conversion of the 2018 Notes, we entered into 2018 Note Hedges with respect to our common stock. We paid $58.2 million for the 2018 Note Hedges. The 2018 Note Hedges cover approximately 4.7 million shares of our common stock at a strike price of $104.85 per share subject to anti-dilution adjustments and are exercisable upon conversion of the 2018 Notes. The 2018 Note Hedges will expire upon the maturity of the 2018 Notes. The 2018 Note Hedges are intended to reduce the potential economic dilution upon conversion of the 2018 Notes in the event that the market value per share of our common stock, as measured under the 2018 Notes, at the time of exercise is greater than the conversion price of the 2018 Notes.

2018 Warrants

Separately, we entered into warrant transactions, whereby we sold warrants to acquire up to 4.7 million shares of our common stock at a strike price of $138.48 per share (“2018 Warrants”), subject to anti-dilution adjustments. The 2018 Warrants will expire upon the maturity of the 2018 Notes. We received proceeds of $23.8 million from the sale of the 2018 Warrants. If the market value per share of our common stock, as measured under the 2018 Warrants, exceeds the strike price of the 2018 Warrants, the 2018 Warrants will have a dilutive effect on our net income per share. The 2018 Warrants had an anti-dilutive effect on our net loss per share during the periods stated.