SanDisk 2006 Annual Report Download - page 125

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price of $95.03 per share. The warrants have an expected life of 7.25 years and expire in August 2013. At
expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of
December 31, 2006, the warrants had not been exercised and remained outstanding. The value of the
warrants has been classified as equity because they meet all the equity classification criteria of EITF 00-19.
1% Convertible Notes Due 2035. In November 2006, the Company assumed the aggregate principal amount
of $75 million 1% Convertible Senior Notes due March 2035 (the “1% Notes due 2035”) from msystems. The
Company is obligated to pay interest on the 1% Notes due 2035 semi-annually on March 15 and September 15
commencing September 15, 2005.
The 1% Notes due 2035 are convertible, at the option of the holders at any time before the maturity date, into
shares of the Company at a conversion rate of 26.8302 shares per one thousand dollars principal amount of 1% Notes
due 2035, representing a conversion price of approximately $37.27 per share. The securities may be redeemed in
cash at the election of the Company, in whole or in part from time to time, at any time beginning on March 15, 2008
and prior to March 15, 2010, at a redemption price equal to 100% of the principal amount of the securities redeemed
plus accrued but unpaid interest thereon, if any, to, but excluding the provisional redemption date if: (1) the last
reported sales price of the ordinary shares has exceeded 130% of the then applicable conversion price, for at least 20
trading days in any period of 30 consecutive trading days ending on the trading day prior to the date of mailing of the
notice of redemption, and (2) if the redemption occurs prior to March 23, 2007, a registration statement covering
resales of the securities and the ordinary shares issuable upon conversion thereof is effective and available for use
and is expected to remain effective for the 30 days following the provisional redemption date unless registration is
no longer required. On and after March 15, 2010, the Company may, at its option, redeem the securities in whole or
in part from time-to-time, at a redemption price equal to 100% of the principal amount of the securities redeemed,
plus any accrued and unpaid interest thereon, if any, to, but excluding, the optional redemption date.
Holders have the right to require the Company to purchase all or a portion of their Notes on March 15, 2010,
March 15, 2015, March 15, 2020, March 15, 2025 and March 15, 2030. The purchase price payable will be equal to
100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, but excluding
the purchase date. The Company will pay cash interest at an annual rate of 1%, payable semi-annually on March 15
and September 15 of each year, beginning November 15, 2006.
In accordance with Accounting Principle Board Opinion No. 14, or APBO 14, Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants, the Company determined the existence of a substantial
premium over par value for the 1% Notes due 2035 based upon quoted market prices at the msystems acquisition
date and recorded the notes at par value with the resulting excess of fair value over par (the substantial premium)
recorded in Capital in excess of par value in Shareholders’ Equity in the amount of $26.4 million.
Note 8: Commitments, Contingencies and Guarantees
Commitments
FlashVision. The Company has a 49.9% ownership interest in FlashVision Ltd., or FlashVision, a business
venture with Toshiba Corporation, or Toshiba, formed in fiscal 2000. In the venture, the Company and Toshiba have
collaborated in the development and manufacture of NAND flash memory products. These NAND flash memory
products are manufactured by Toshiba at its 200-millimeter wafer fabrication facilities, located in Yokkaichi, Japan,
using the semiconductor manufacturing equipment owned or leased by FlashVision. FlashVision purchases wafers
from Toshiba at cost and then resells those wafers to the Company and Toshiba at cost plus a markup. Toshiba owns
50.1% of this venture. The Company accounts for its 49.9% ownership position in FlashVision under the equity
method of accounting. The terms of the FlashVision venture contractually obligate the Company to purchase half of
FlashVision’s NAND wafer supply. The Company cannot estimate the total amount of this commitment as of
December 31, 2006, because it is based upon future costs and volumes. In addition, the Company is committed to
fund 49.9% of FlashVision’s costs to the extent that FlashVision’s revenues from wafer sales to the Company and
Toshiba are insufficient to cover these costs.
F-26
Notes to Consolidated Financial Statements — (Continued)