SanDisk 2012 Annual Report Download - page 190

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 approximately $0.8 million in stockholders’ equity from
the net deferred tax liability related to the convertible bond hedge at inception of the transaction. As of
December 30, 2012, the Company had not purchased any shares under the remaining convertible bond
hedge agreement.
•Warrants. The Company received $308.7 million from the same counterparties from the sale of
warrants to purchase up to approximately 14.0 million shares of the Company’s common stock at an
exercise price of $95.03 per share. During fiscal year 2011, due to the repurchase of a portion of the
outstanding 1% Notes due 2013, the Company unwound a pro-rata portion of the warrants. The
counterparties may now purchase up to 11.3 million shares of the Company’s common stock at an
exercise price of $95.03 per share. As of December 30, 2012, the warrants (separated into 20 separate
components) had an expected life of 0.6 years and expire on 20 different dates from August 23, 2013
through September 20, 2013. At expiration, the Company may, at its option, elect to settle the warrants
on a net share basis. As of December 30, 2012, the remaining warrants had not been exercised and
remained outstanding. The value of the warrants was initially recorded in equity and continues to be
classified as equity.
Bond Repurchase. In the twelve months ended January 1, 2012, the Company repurchased $221.9 million
principal amount of its 1% Notes due 2013 in private transactions with a limited number of bondholders for cash
consideration of $211.1 million. The repurchase was economically beneficial given the notes were repurchased
below the principal amount and given that interest rates on cash and marketable securities were lower than the
1% coupon rate of the notes. In accordance with current accounting guidance, at settlement, the fair value of the
liability component of the convertible debt immediately prior to repurchase is measured using current interest
rates, 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.
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