EMC 2011 Annual Report Download - page 67

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2011, the 2011 Notes had matured and a majority of the note holders exercised their rights to convert the outstanding Notes. Due to
the settlement terms, the majority of the converted Notes were not settled until January 9, 2012. At that time, we paid the note holders $1,699.8 million in cash
for the outstanding principal and 29.5 million shares for the $661.4 million excess of the conversion value over the principal amount, as prescribed by the
terms of the Notes.
The holders of the 2013 Notes may convert their Notes at their option on any day prior to the close of business on the scheduled trading day
immediately preceding September 1, 2013 only under the following circumstances: (1) during the five business-day period after any five consecutive trading-
day period (the "measurement period") in which the price per Note for each day of that measurement period was less than 98% of the product of the last
reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter, if the last reported sale price of our
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 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (3) upon the
occurrence of certain events specified in the Notes. Additionally, the 2013 Notes will become convertible during the last three months prior to their maturity.
Upon conversion, we will pay cash up to the principal amount of the debt converted. With respect to any conversion value in excess of the principal
amount of the Notes converted, we have the option to settle the excess with cash, shares of our common stock, or a combination of cash and shares of our
common stock based on a daily conversion value, determined in accordance with the indenture, calculated on a proportionate basis for each day of the
relevant 20-day observation period. The initial conversion rate for the Notes will be 62.1978 shares of our common stock per one thousand dollars of principal
amount of Notes, which represents a 27.5% conversion premium from the date the Notes were issued and is equivalent to a conversion price of approximately
$16.08 per share of our common stock. The conversion price is subject to adjustment in some events as set forth in the indenture. In addition, if a
"fundamental change" (as defined in the indenture) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of Notes
that elects to convert its Notes in connection with such fundamental change.
At December 31, 2011, the contingent conversion thresholds on the Notes were exceeded. As a result, the 2013 Notes became convertible at the option
of the holder through March 31, 2012. Accordingly, since the terms of the Notes require the principal to be settled in cash, we reclassified from shareholders'
equity the portion of the Notes attributable to the conversion feature which had not yet been accreted to its face value, and the Notes were classified as a
current liability. Contingencies continue to exist regarding the holders' ability to convert the 2013 Notes in future quarters. The determination of whether the
2013 Notes are convertible will be performed on a quarterly basis. Consequently, the Notes might not be convertible in future quarters and therefore the 2013
Notes may be reclassified as long-term debt if the contingent conversion thresholds are not met. Approximately $0.5 million of the 2013 Notes have been
converted as of December 31, 2011.
The carrying amount of the 2013 Notes reported in the consolidated balance sheets as of December 31, 2011 was $1,724.5 million and the fair value
was $2,500.5 million. The carrying amount of the equity component of the 2013 Notes was $263.5 million at December 31, 2011. As of December 31, 2011,
the unamortized discount on the 2013 Notes consists of $119.3 million, which will be fully amortized by December 1, 2013.
The Notes pay interest in cash at a rate of 1.75% semi-annually in arrears on December 1 and June 1 of each year. The effective interest rate on the
Notes was 5.6% for the years ended December 31, 2011, 2010 and 2009.
The following table represents the key components of our convertible debt (table in thousands):
For the Twelve Months Ended
2011 2010 2009
Contractual interest expense on the coupon $ 57,646 $ 60,375 $ 60,375
Amortization of the discount component recognized as interest expense 115,904 114,481 108,347
Total interest expense on the convertible debt $ 173,550 $ 174,856 $ 168,722
In connection with the issuance of the Notes, we entered into separate convertible note hedge transactions with respect to our common stock (the
"Purchased Options"). The Purchased Options allow us to receive shares of our common stock and/or cash related to the excess conversion value that we
would pay to the holders of the Notes upon conversion. The Purchased Options will cover, subject to customary anti-dilution adjustments, approximately
215 million shares of our common stock. In the fourth quarter of 2011, we exercised 107.5 million of the Purchased Options in conjunction with the planned
settlements of the 2011 Notes, and
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