SanDisk 2014 Annual Report Download - page 170

SANDISK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Adjusting for dividends paid through December 28, 2014, holders of the warrants
may acquire up to approximately 19.5 million shares of the Company’s common stock at a strike
price of $71.9005 per share as of December 28, 2014. The warrants mature on 40 different dates
from November 13, 2017 through January 10, 2018 and are exercisable at the maturity date. At each
maturity date, the Company may, at its option, elect to settle the warrants on a net share basis. As
of December 28, 2014, 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 16.3 million shares at an initial conversion price of approximately $92.19 per
share). The 0.5% Notes due 2020 contain 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. Accordingly, as of
December 28, 2014, the conversion rate was adjusted for dividends in excess of $0.225 per share paid to
date to 10.8647 shares of common stock per $1,000 principal amount of notes (which represents
16.3 million shares at a conversion price of approximately $92.04 per share). 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 28,
2014, the carrying value of the equity component of $352.0 million was unchanged from the date of
issuance.
The following table presents the amount of interest cost recognized relating to the contractual interest
coupon, amortization of bond issuance costs and amortization of the bond discount on the liability
component of the 0.5% Notes due 2020 (in thousands):
Fiscal years ended
December 28, December 29,
2014 2013
Contractual interest coupon ....................................... $ 7,500 $ 1,271
Amortization of bond issuance costs .................................. 2,551 439
Amortization of bond discount ..................................... 43,527 7,486
Total interest cost recognized ................................... $ 53,578 $ 9,196
The effective interest rate on the liability component of the 0.5% Notes due 2020 was 4.43% for the
fiscal years ended December 28, 2014 and December 29, 2013. The remaining unamortized bond discount
of $300.3 million as of December 28, 2014 will be amortized over the remaining life of the 0.5% Notes
due 2020, which is approximately 5.8 years.
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