SanDisk 2010 Annual Report Download - page 161

This is a TAB type table. Insert
conts here. Annual Report
due 2013 and $104.8 million of the net proceeds of the offering of the 1.5% Notes due 2017 to fund the cost to us
of the convertible note hedge transactions (after taking into account the proceeds to us from the warrant
transactions) entered into in connection with the offerings of the notes. These transactions were accounted for as
an adjustment to our stockholders’ equity.
The 1% Notes due 2013 and the 1.5% Notes due 2017 have a conversion feature with a strike price of
$82.36 and $52.37, respectively. If our stock price goes above the strike price of either the 1% Notes due 2013
and/or the 1.5% Notes due 2017, we will be required to include additional shares in our diluted earnings per share
calculation, which will result in a decrease in our reported earnings per share. While we have entered into
convertible note hedge transactions which will effectively increase the strike price from an economic standpoint
and reduce the potential dilution upon conversion, the impact of the convertible note hedge transactions will not
be reflected in our reported diluted earnings per share.
In addition, we may, from time-to-time, repurchase a certain portion of the 1% Notes due 2013 and/or the
1.5% Notes due 2017. In connection with any such repurchases, we may early terminate a portion of the
convertible note hedge transactions we entered into with respect to the 1% Notes due 2013 or the 1.5% Notes due
2017 that we repurchase, and a portion of the warrant transactions we entered into at the time of the offerings of
those notes. In connection with any such termination of a portion of the hedge and warrant transactions, the
counterparties to those transactions are expected to unwind various over-the-counter derivatives and/or sell our
common stock in open market and/or privately negotiated transactions, which could adversely impact the market
price of our common stock and of the notes.
In connection with the convertible note hedge and warrant transactions, the dealers or their respective
affiliates:
• have entered into various over-the-counter cash-settled derivative transactions with respect to our
common stock concurrently with, or shortly following, the pricing of the notes; and
• may enter into, or may unwind, various over-the-counter cash-settled derivative transactions and/or
purchase or sell shares of our common stock in open market and/or privately negotiated transactions
following the pricing of the notes, including during any observation period related to a conversion of
notes.
The dealers or their respective affiliates are likely to modify their hedge positions, from time-to-time, prior
to conversion or maturity of the notes by purchasing and selling shares of our common stock, other of our
securities or other instruments they may wish to use in connection with such hedging. In particular, such hedging
modification may occur during any observation period for a conversion of the 1% Notes due 2013 and 1.5%
Notes due 2017, which may have a negative effect on the value of the consideration received in relation to the
conversion of those notes. In addition, we intend to exercise options we hold under the convertible note hedge
transactions whenever notes are converted. To unwind their hedge positions with respect to those exercised
options, the dealers or their respective affiliates expect to purchase or sell shares of our common stock in open
market and/or privately negotiated transactions and/or enter into or unwind various over-the-counter derivative
transactions with respect to our common stock during the observation period, if any, for the converted notes.
The effect, if any, of any of these transactions and activities on the market price of our common stock or the
1% Notes due 2013 and 1.5% Notes due 2017 will depend in part on market conditions and cannot be ascertained
at this time, but any of these activities could adversely affect the value of our common stock and the value of the
1% Notes due 2013 and 1.5% Notes due 2017, and, as a result, the amount of cash and the number of shares of
common stock, if any, the holders will receive upon the conversion of the notes.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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