Tyson Foods 2012 Annual Report Download - page 49

49
2013 Notes
In September 2008, we issued $458 million principal amount 3.25% convertible senior unsecured notes due October 15, 2013, with
interest payable semi-annually in arrears on April 15 and October 15. The conversion rate initially is 59.1935 shares of Class A stock
per $1,000 principal amount of notes, which is equivalent to an initial conversion price of $16.89 per share of Class A stock. The 2013
Notes may be converted before the close of business on July 12, 2013, only under the following circumstances:
• during any fiscal quarter after December 27, 2008, if the last reported sale price of our Class A stock for at least 20 trading
days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is at least
130% of the applicable conversion price on each applicable trading day (which would currently require our shares to trade at
or above $21.96); or
• during the five business days after any 10 consecutive trading days (measurement period) in which the trading price per
$1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of our Class A stock and the applicable conversion rate on each such day; or
• upon the occurrence of specified corporate events as defined in the supplemental indenture.
On and after July 15, 2013, until the close of business on the second scheduled trading day immediately preceding the maturity date,
holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we will deliver cash up to
the aggregate principal amount of the 2013 Notes to be converted and shares of our Class A stock in respect of the remainder, if any, of
our conversion obligation in excess of the aggregate principal amount of the 2013 Notes being converted. As of September 29, 2012,
none of the conditions permitting conversion of the 2013 Notes had been satisfied. However, due to the early conversion option
regardless of conversion conditions beginning in July 2013, we have recorded the 2013 Notes balance, net of remaining discount, as
Current debt in our Consolidated Balance Sheets at September 29, 2012.
The 2013 Notes were originally accounted for as a combined instrument because the conversion feature did not meet the requirements
to be accounted for separately as a derivative financial instrument. However, we adopted new accounting guidance in the first quarter
of fiscal 2010 and applied it retrospectively to all periods presented. This new accounting guidance required us to separately account
for the liability and equity conversion features. Upon retrospective adoption, our effective interest rate on the 2013 Notes was
determined to be 8.26%, which resulted in the recognition of a $92 million discount to these notes with the offsetting after tax amount
of $56 million recorded to capital in excess of par value. This discount is being accreted over the five-year term of the convertible
notes at the effective interest rate.
In connection with the issuance of the 2013 Notes, we entered into separate convertible note hedge transactions with respect to our
Class A stock to minimize the potential economic dilution upon conversion of the 2013 Notes. We also entered into separate warrant
transactions. We recorded the purchase of the note hedge transactions as a reduction to capital in excess of par value, net of $36
million pertaining to the related deferred tax asset, and we recorded the proceeds of the warrant transactions as an increase to capital in
excess of par value. Subsequent changes in fair value of these instruments are not recognized in the financial statements as long as the
instruments continue to meet the criteria for equity classification.
We purchased call options in private transactions for $94 million that permit us to acquire up to approximately 27 million shares of our
Class A stock at an initial strike price of $16.89 per share, subject to adjustment. The call options allow us to acquire a number of
shares of our Class A stock initially equal to the number of shares of Class A stock issuable to the holders of the 2013 Notes upon
conversion. These call options will terminate upon the maturity of the 2013 Notes.
We sold warrants in private transactions for total proceeds of $44 million. The warrants permit the purchasers to acquire up to
approximately 27 million shares of our Class A stock at an initial exercise price of $22.31 per share, subject to adjustment. The
warrants are exercisable on various dates from January 2014 through March 2014.
The maximum amount of shares that may be issued to satisfy the conversion of the 2013 Notes is limited to 35.9 million shares.
However, the convertible note hedge and warrant transactions, in effect, increase the initial conversion price of the 2013 Notes from
$16.89 per share to $22.31 per share, thus reducing the potential future economic dilution associated with conversion of the 2013
Notes. If our share price is below $22.31 upon conversion of the 2013 Notes, there is no economic net share impact. Upon conversion,
a 10% increase in our share price above the $22.31 conversion price would result in the issuance of 2.5 million incremental shares.
The 2013 Notes and the warrants could have a dilutive effect on our earnings per share to the extent the price of our Class A stock
during a given measurement period exceeds the respective exercise prices of those instruments. The call options are excluded from the
calculation of diluted earnings per share as their impact is anti-dilutive.