SanDisk 2013 Annual Report Download - page 193

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
current accounting guidance, at settlement, the fair value of the liability component of the convertible debt
immediately prior to repurchase was measured using interest rates at settlement, and the difference
between the fair value of the aggregate consideration remitted to the holders and the fair value of the
liability component of the convertible debt immediately prior to repurchase is attributed to the
reacquisition of the equity component. The difference between the fair value of the liability component of
the convertible debt immediately prior to the repurchase and the carrying value of the debt redeemed was
recorded as expense on extinguishment of debt in Interest (expense) and other income (expense), net, in
the Consolidated Statements of Operations.
In connection with the repurchase of a portion of the 1% Notes due 2013, the Company unwound a
portion of the convertible bond hedge and warrants. As a result of this unwinding, the Company received
net proceeds of $0.3 million, which was recorded in equity.
1.5% Convertible Senior Notes Due 2017. In August 2010, the Company issued and sold $1.0 billion in
aggregate principal amount of 1.5% Convertible Senior Notes due August 15, 2017 (the ‘‘1.5% Notes due
2017’’) at par. The 1.5% Notes due 2017 may be converted, under certain circumstances described below,
based on an initial conversion rate of 19.0931 shares of common stock per $1,000 principal amount of
notes (which represents an initial conversion price of approximately $52.37 per share). The 1.5% Notes
due 2017 contains provisions where the conversion rate and conversion price are adjusted if the Company
pays a cash dividend or makes a distribution to all or substantially all holders of its common stock.
Accordingly, as of December 29, 2013, the conversion rate was adjusted for dividends paid to date to
19.2307 shares of common stock per $1,000 principal amount of notes (which represents a conversion price
of approximately $52.00 per share). The net proceeds to the Company from the sale of the 1.5% Notes due
2017 were $981.0 million.
The Company separately accounts for the liability and equity components of the 1.5% Notes due 2017.
The principal amount of the liability component of $706.0 million as of the date of issuance was recognized
at the present value of its cash flows using a discount rate of 6.85%, the Company’s borrowing rate at the
date of the issuance for a similar debt instrument without the conversion feature. As of December 29,
2013, the carrying value of the equity component of $294.0 million was unchanged from the date of
issuance.
The following table presents the amount of interest cost recognized relating to the contractual interest
coupon, amortization of bond issuance costs and amortization of the bond discount on the liability
component of the 1.5% Notes due 2017 (in thousands):
Fiscal years ended
December 29, December 30, January 1,
2013 2012 2012
Contractual interest coupon ............................. $ 15,000 $ 15,000 $ 15,000
Amortization of bond issuance costs ....................... 2,667 2,666 2,695
Amortization of bond discount ........................... 39,095 36,364 34,140
Total interest cost recognized ......................... $ 56,762 $ 54,030 $ 51,835
The effective interest rate on the liability component of the 1.5% Notes due 2017 was 6.85% for each
of the three fiscal years ended December 29, 2013. The remaining unamortized bond discount of
$170.2 million as of December 29, 2013 will be amortized over the remaining life of the 1.5% Notes due
2017, which is approximately 3.6 years.
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Annual Report