TiVo 2003 Annual Report Download - page 69

Table of Contents
In accordance with the provisions of SFAS No. 84, "Induced Conversions of Convertible Debt" (an Amendment of APB Opinion No. 26), the Company
determined that the treatment of the additional shares issued at the reduced conversion price of $3.70 per share over the number of shares that would have
been issued at the regular conversion price of $3.99 per share, should be accounted for as an expense at the fair market value of the additional shares issued as
of the date of each conversion.
The temporary conversion price reduction implemented as an incentive for early conversions for the 20-business day period beginning December 30,
2002 and ended January 28, 2003 resulted in conversions of $22,701,000 face value of outstanding convertible notes into 6,135,400 shares of the Company's
common stock. The value of the additional shares resulting from the temporary incentive conversion price reduction, that were issued to noteholders
converting during this period was $2.6 million (including $529,400 for a related party noteholder). This amount was expensed as additional debt financing
expense (included in interest expense and other, with related credits to common stock and additional paid in capital) during the period. The value of the
incremental shares issued was calculated by multiplying the number of additional shares issued of 445,936 at the reduced conversion price of $3.70 over that
number of shares that would have been issued at the conversion price of $3.99 by the fair market value of the Company's common stock at the date of each
conversion.
During the fiscal year ended January 31, 2004 the Company issued 2,506,265 shares of common stock as a result of one convertible noteholder, a
related party, converting $10.0 million in face value of convertible notes payable-related parties at the conversion price of $3.99 per share, in accordance with
the terms of the Convertible Notes Payable Indenture. After this conversion, as of January 31, 2004, the Company had outstanding convertible notes payable
at face value of $10.5 million, held by approximately four noteholders.
As of January 31, 2004 and 2003, the carrying value of the convertible notes payable was as follows:
Convertible
notes
payable
Convertible
notes
payable-related
parties Total
(In thousands)
As of January 31, 2003
Face value of convertible notes payable $ 10,450 $ 10,000 $ 20,450
Unamortized discount resulting from warrants issued to noteholders (1,479) (1,232) (2,711)
Unamortized discount resulting from beneficial conversion feature (4,706) (4,848) (9,554)
Carrying value of convertible notes payable as of January 31, 2003 $ 4,265 $ 3,920 $ 8,185
As of January 31, 2004
Face value of convertible notes payable $ 10,450 $ — $ 10,450
Unamortized discount resulting from warrants issued to noteholders (1,091) — (1,091)
Unamortized discount resulting from beneficial conversion feature (3,354) — (3,354)
Carrying value of convertible notes payable as of January 31, 2004 $ 6,005 $ — $ 6,005
• The convertible notes payable instruments are not publicly traded. Therefore, the Company estimated the fair value of its outstanding convertible
notes by utilizing the value of the common stock that the notes were convertible into. As these convertible notes are deeply in the money, the
Company estimates that the convertible notes can be valued using the fair value of the underlying stock. As of January 31, 2004, the convertible
notes payable long-term, face value of $10,450,000 were convertible (using the conversion price of $3.99 then in effect) into 2,619,048 shares of
the Company's common stock. The closing price of the Company's common stock on January 31, 2004, as quoted on the Nasdaq, was $10.75. If
converted, the total fair value of these shares at the closing price would have been $28.2 million.
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