SanDisk 2009 Annual Report Download - page 136

Notes To Consolidated Financial Statements
The remaining bond discount of the 1% Notes due 2013 of $215.3 million as of January 3, 2010 will be
amortized over the remaining life of approximately 3.3 years.
The 1% Notes due 2013 may be converted 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, a combination of common stock
and cash. The conversion price will be subject to adjustment in some events but will not be adjusted for accrued
interest. In addition, upon a fundamental change at any time, as defined, 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 are 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 hedge transaction
will be settled in net shares and will terminate upon the earlier of the maturity date of the 1% Notes due
2013 or the first day none of the 1% Notes due 2013 remain outstanding due to conversion or otherwise.
Settlement of the convertible bond hedge in net shares, based on the number of shares issued upon
conversion of the 1% Notes due 2013, on the expiration date would result in the Company receiving net
shares equivalent to the number of shares issuable by the Company upon conversion of the 1% Notes due
2013. Should there be an early unwind of the convertible bond hedge transaction, the number of net
shares potentially received by the Company will depend upon 1) the then existing overall market
conditions, 2) the Company’s stock price, 3) the volatility of the Company’s stock, and 4) the amount of
time remaining before expiration of the convertible bond hedge. The convertible bond hedge transaction
cost of $386.1 million has been accounted for as an equity transaction. The Company initially recorded a
tax benefit of approximately $145.6 million in stockholders’ equity from the deferred tax asset related to
the convertible bond hedge at inception of the transaction.
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