SanDisk 2010 Annual Report Download - page 210

Notes To Consolidated Financial Statements
The following table presents the amount of interest cost recognized for the periods relating to both the
contractual interest coupon and amortization of the discount on the liability component of the 1% Notes due 2013
(in millions):
Year ended
January 2,
2011
January 3,
2010
December 28,
2008
Contractual interest coupon ................................... $ 11.5 $ 11.5 $ 11.5
Amortization of interest discount .............................. 58.5 55.6 50.5
Total interest cost recognized ............................. $ 70.0 $ 67.1 $ 62.0
The remaining bond discount of $156.8 million as of January 2, 2011 will be amortized over the remaining
life of the 1% Notes due 2013, which is approximately 2.4 years.
The 1% Notes due 2013 may be converted on any day prior to the close of business on the scheduled trading
day immediately preceding February 15, 2013, in multiples of $1,000 principal amount at the option of the holder
under any of the following circumstances: 1) during the five business-day period after any five consecutive
trading-day period (the “measurement period”) in which the trading price per note for each day of such
measurement period was less than 98% of the product of the last reported sale price of the Company’s common
stock and the conversion rate on each such day; 2) during any calendar quarter after the calendar quarter ending
June 30, 2006, if the last reported sale price of the Company’s common stock for 20 or more trading days in a
period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar
quarter exceeds 120% of the applicable conversion price in effect on the last trading day of the immediately
preceding calendar quarter; or 3) upon the occurrence of specified corporate transactions. On and after
February 15, 2013 until the close of business on the scheduled trading day immediately preceding the maturity
date of May 15, 2013, holders may convert their notes at any time, regardless of the foregoing circumstances.
Upon conversion, a holder will receive the conversion value of the 1% Notes due 2013 to be converted
equal to the conversion rate multiplied by the volume weighted average price of the Company’s common stock
during a specified period following the conversion date. The conversion value of each 1% Notes due 2013 will be
paid in: 1) cash equal to the lesser of the principal amount of the note or the conversion value, as defined, and
2) to the extent the conversion value exceeds the principal amount of the note, common stock (plus cash in lieu
of any fractional shares of common stock). The conversion price will be subject to adjustment in some events but
will not be adjusted for accrued interest. Upon a “fundamental change” at any time, as defined, the Company will
in some cases increase the conversion rate for a holder who elects to convert its 1% Notes due 2013 in
connection with such fundamental change. In addition, the holders may require the Company to repurchase for
cash all or a portion of their notes upon a “designated event” at a price equal to 100% of the principal amount of
the notes being repurchased plus accrued and unpaid interest, if any.
The Company pays cash interest at an annual rate of 1%, payable semi-annually on May 15 and
November 15 of each year, beginning November 15, 2006. Debt issuance costs were approximately
$24.5 million, of which $8.7 million was allocated to capital in excess of par value and $15.8 million was
allocated to deferred issuance costs and is amortized to interest expense over the term of the 1% Notes due 2013.
Concurrently with the issuance of the 1% Notes due 2013, the Company purchased a convertible bond
hedge and sold warrants. The separate convertible bond hedge and warrant transactions are structured to reduce
the potential future economic dilution associated with the conversion of the 1% Notes due 2013 and to increase
the initial conversion price to $95.03 per share. Each of these components is discussed separately below:
•Convertible Bond Hedge. Counterparties agreed to sell to the Company up to approximately 14 million
shares of the Company’s common stock, which is the number of shares initially issuable upon
conversion of the 1% Notes due 2013 in full, at a price of $82.36 per share. The convertible bond
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