SanDisk 2013 Annual Report Download - page 195

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
date of the 1.5% Notes due 2017 or the first day none of the 1.5% Notes due 2017 remain
outstanding due to conversion or otherwise. Settlement of the convertible bond hedge in net shares,
based on the number of shares issuable upon conversion of the 1.5% Notes due 2017, 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 1.5% Notes due 2017. 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 $292.9 million has been accounted for as an equity transaction. The Company initially
recorded approximately $1.7 million in stockholders’ equity from the deferred tax asset related to
the convertible bond hedge at inception of the transaction. As of December 29, 2013, the Company
had not purchased any shares under this convertible bond hedge agreement.
•Warrants. The Company received $188.1 million from the same counterparties from the sale of
warrants to purchase up to approximately 19.1 million shares of the Company’s common stock at an
exercise price of $73.3250 per share. The 1.5% Notes due 2017 contains provisions whereby the
number of shares to be acquired under the warrants and the strike price are adjusted if the
Company pays a cash dividend or makes a distribution to all or substantially all holders of its
common stock. After adjusting for the dividends paid through December 29, 2013, holders of the
warrants may acquire up to approximately 19.2 million shares of the Company’s common stock at a
strike price of $72.8005 per share. The warrants mature on 40 different dates from November 13,
2017 through January 10, 2018 and are exercisable at the maturity date. At each expiration date, the
Company may, at its option, elect to settle the warrants on a net share basis. As of December 29,
2013, the 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.
0.5% Convertible Senior Notes Due 2020. In October 2013, the Company issued and sold $1.5 billion in
aggregate principal amount of 0.5% Convertible Senior Notes due October 15, 2020 (the ‘‘0.5% Notes due
2020’’) at par. The 0.5% Notes due 2020 may be converted, under certain circumstances described below,
based on an initial conversion rate of 10.8470 shares of common stock per $1,000 principal amount of
notes (which represents an initial conversion price of approximately $92.19 per share). The 0.5% Notes
due 2020 contains provisions where the conversion rate and conversion price are adjusted if the Company
pays a cash dividend greater than a regular quarterly cash dividend of $0.225 per share or makes a
distribution to all or substantially all holders of its common stock. As of December 29, 2013, no adjustment
has been made to the conversion rate or the conversion price. The net proceeds to the Company from the
sale of the 0.5% Notes due 2020 were approximately $1.48 billion.
The Company separately accounts for the liability and equity components of the 0.5% Notes due 2020.
The principal amount of the liability component of $1.15 billion as of the date of issuance was recognized
at the present value of its cash flows using a discount rate of 4.43%, the Company’s borrowing rate at the
date of the issuance for a similar debt instrument without the conversion feature. As of December 29,
2013, the carrying value of the equity component of $352.0 million was unchanged from the date of
issuance.
F-29
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