CYTOKINETICS INC New Standards Disclosure

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06. Under ASU 2020-06 the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument is accounted for as a single liability measured at its amortized cost and convertible preferred stock is accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives.

We adopted this new guidance using the modified retrospective method as of January 1, 2022, with respect to our 2026 Notes. The cumulative effect of initially applying the new standard was recognized as an adjustment to accumulated deficit. The following table summarizes the adjustments made to our consolidated balance sheet as of January 1, 2022, upon adoption of the new standard (in 000's):

The adoption of this new guidance resulted in an increase in the carrying value of the 2026 Notes to reflect the full principal amount of the convertible notes outstanding, net of issuance costs, a decrease in additional paid-in capital to remove the equity component separately recorded for the conversion feature associated with the convertible notes, a cumulative-effect adjustment to the beginning balance of our accumulated deficit as of January 1, 2022 to reverse the accretion of discount that resulted from the bifurcation of the equity component of the 2026 Notes, and a reversal of the related deferred tax liability of $8.3 million with a corresponding increase in our deferred tax asset valuation allowance. The adoption of this new guidance reduced non-cash interest expense for the year ending December 31, 2022 and will continue to do so until the 2026 Notes have been settled. The remaining debt issuance costs will continue to be amortized over the term of the notes.

We have recognized $3.6 million of interest expense of the 2026 Notes in 2022 which is $3.3 million less than under the previous accounting standards in 2022. Without the adoption of ASU 2020-06, our reported net loss would have increased by $3.3 million in 2022. Without the adoption of ASU 2020-06, our reported net loss per share would have increased by $0.04 per share in 2022.

On July 6, 2022, the Company issued the 2027 Notes and partially repurchased the 2026 Notes as further described in Note 7 – “Debt.” ASU 2020-06 was applied to the 2027 Notes from the moment of issuance, and thus the above adjustments apply only to the 2026 Notes.