Note 14: Long Term Debt and Other Borrowings

Convertible Senior Notes

In May 2011, the Company issued and sold $450 million in aggregate principal amount of 0.50% Convertible Senior Notes due May 2016 (the “2016 Notes”) at par. At the same time, the Company issued and sold $450 million in aggregate principal amount of 1.25% Convertible Senior Notes due May 2018 (the “2018 Notes”) at par. The Company pays cash interest at an annual rate of 0.5% and 1.25%, respectively, on the 2016 Notes and the 2018 Notes, on a semi-annual basis on May 15 and November 15 of each year.

In June 2012, with the acquisition of Novellus, the Company assumed $700 million in aggregate principal amount of 2.625% Convertible Senior Notes due May 2041 (the “2041 Notes,” collectively with the 2016 Notes and the 2018 Notes, the “Convertible Notes”). The Company pays cash interest at an annual rate of 2.625%, on a semi-annual basis on May 15 and November 15 of each year on the 2041 Notes. The 2041 Notes also have a contingent interest payment provision that may require the Company to pay additional interest, up to 0.60% per year, based on certain thresholds, beginning with the semi-annual interest payment on May 15, 2021, and upon the occurrence of certain events, as outlined in the indenture governing the 2041 Notes.

The Company separately accounts for the liability and equity components of the Convertible Notes. The initial liability components of the Convertible Notes were valued based on the present value of the future cash flows using the Company’s borrowing rate at the date of the issuance or assumption for similar debt instruments without the conversion feature, which equals the effective interest rate on the liability component disclosed in the following table, respectively. The equity component was initially valued equal to the principle value of the notes, less the present value of the future cash flows using the Company’s borrowing rate at the date of the issuance or assumption for similar debt instruments without a conversion feature, which equated to the initial debt discount.

Under certain circumstances, the Convertible Notes may be converted into shares of the Company’s Common Stock. The number of shares each debenture is convertible into is based on conversion rates, disclosed in the following table. The conversion rates are adjusted for certain corporate events, including dividends on the Company’s Common Stock. At June 28, 2015, the market value of the Company’s Common Stock was greater than 130% of the Convertible Notes conversion prices for 20 or more of the 30 consecutive trading days preceding the quarter end. As a result, the Convertible Notes are convertible at the option of the bondholder. The carrying amount of the Convertible Notes was classified in current liabilities and a portion of the equity component, representing the unamortized debt discount, was classified in temporary equity on the Company’s Consolidated Balance Sheets. Upon closure of the conversion period, the 2018 and 2041 Notes not converted will be reclassified back into noncurrent liabilities, the 2016 Notes will remain in current liabilities due to its scheduled maturity, and the temporary equity will be reclassified into permanent equity. At June 29, 2014 the 2041 Notes were convertible at the option of the bondholder.

As of June 28, 2015 and June 29, 2014, the Convertible Notes consisted of the following:


	June 28, 2015						June 29, 2014
	2016 Notes		2018 Notes		2041 Notes		2016 Notes		2018 Notes		2041 Notes
	(in thousands, except years, percentages, conversion rate, and conversion price)
Carrying value, long-term	$	—	$	—	$	—	$	419,561	$	387,338	$	—
Carrying value, current portion		435,493		402,320		520,313		—		—		516,586
Unamortized discount		14,507		47,680		179,622		30,439		62,662		183,349

Principal amount	$	450,000	$	450,000	$	699,935	$	450,000	$	450,000	$	699,935

Carrying amount of permanent equity component, net of tax	$	61,723	$	57,215	$	148,487	$	76,230	$	104,895	$	144,760
Carrying amount of temporary equity component, net of tax	$	14,507	$	47,679	$	179,622	$	—	$	—	$	183,349
Remaining amortization period (years)		0.9		2.9		25.9
Effective interest rate on liability component		4.29%		5.27%		4.28%
Fair Value of Notes (Level 2)	$	604,004	$	643,500	$	1,679,844
Conversion rate (shares of common stock per $1,000 principal amount of notes)		16.0806		16.0806		28.8585
Conversion price (per share of common stock)	$	62.19	$	62.19	$	34.65
If-converted value in excess of par value	$	149,598	$	149,598	$	973,758

Convertible Note Hedges and Warrants

Concurrent with the issuance of the 2016 Notes and 2018 Notes, the Company purchased a convertible note hedge and sold warrants. At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of June 28, 2015, the warrants had not been exercised and remained outstanding. The exercise price is adjusted for certain corporate events, including dividends on the Company’s Common Stock.

In conjunction with the convertible note hedge, counterparties agreed to sell to the Company shares of Common Stock equal to the number of shares issuable upon conversion of the 2016 Notes and 2018 Notes in full. The convertible note hedge transactions will be settled in net shares and will terminate upon the earlier of the maturity date or the first day none of the respective notes remain outstanding due to conversion or otherwise. Settlement of the convertible note hedge in net shares, based on the number of shares issued upon conversion of the 2016 and 2018 Notes, 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 2016 Notes and 2018 Notes. The exercise price is adjusted for certain corporate events, including dividends on the Company’s Common Stock.

The following table presents the details of the warrants and convertible note hedge arrangements as of June 28, 2015:


	2016 Notes	2018 Notes
	(shares in thousands)
Warrants:
Number of shares to be delivered upon exercise	7,236	7,236
Exercise price	$70.40	$75.10
Expiration date range	August 15 - October 21, 2016	August 15 - October 23, 2018
Convertible Note Hedge:
Number of shares available from counterparties	7,236	7,236
Exercise price	$62.19	$62.19

Senior Notes

On March 12, 2015, the Company completed a public offering of $500 million aggregate principal amount of the Company’s Senior Notes due March 2020 (the “2020 Notes”) and $500 million aggregate principal amount of the Company’s Senior Notes due March 2025 (the “2025 Notes”, together with the 2020 Notes, the “Senior Notes”). The Company will pay interest at an annual rate of 2.75% and 3.80%, respectively, on the 2020 Notes and 2025 Notes, on a semi-annual basis on March 15 and September 15 of each year, beginning September 15, 2015.

The Company may redeem the Senior Notes at a redemption price equal to 100% of the principal amount of such series (“par”), plus a “make whole” premium as described in the indenture in respect of the Senior Notes and accrued and unpaid interest before February 15, 2020, for the 2020 Notes and before December 15, 2024, for the 2025 Notes. The Company may redeem the Senior Notes at par, plus accrued and unpaid interest at any time on or after February 15, 2020 for the 2020 Notes and on or after December 24, 2024 for the 2025 Notes. In addition, upon the occurrence of certain events, as described in the indenture, the Company will be required to make an offer to repurchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest.

As of June 28, 2015 the Senior Notes consisted of the following:


	June 28, 2015
	2020 Notes		2025 Notes
	(in thousands, except years)
Carrying value, long-term	$	497,053	$	496,907
Unamortized discount		2,947		3,093

Principal amount	$	500,000	$	500,000

Remaining amortization period (years)		4.7		9.7
Fair Value of Notes (Level 2)	$	497,805	$	492,945

Interest Cost

The following table presents the amount of interest cost recognized relating to both the contractual interest coupon and amortization of the debt discount, issuance costs, and effective portion of interest rate contracts with respect to the Senior Notes and the Convertible Notes during the twelve months ended June 29, 2015, June 28, 2014, and June 30, 2013.


	Twelve Months Ended
	June 28, 2015		June 29, 2014		June 30, 2013
	(in thousands)
Contractual interest coupon	$	36,074	$	26,248	$	26,248
Amortization of interest discount		34,886		33,065		31,560
Amortization of issuance costs		2,435		2,362		2,362
Amortization of interest rate contract		113		—		—

Total interest cost recognized	$	73,508	$	61,675	$	60,170

Revolving Credit Facility

On March 12, 2014, the Company entered into a $300 million revolving unsecured credit facility with a syndicate of lenders. The facility matures on March 12, 2019. The facility includes an option, subject to certain requirements, for the Company to request an increase in the facility of up to an additional $200 million, for a potential total commitment of $500 million. Proceeds from the credit facility can be used for general corporate purposes.

Interest on amounts borrowed under the credit facility is, at the Company’s option, based on (i) a base rate, defined as the greatest of (a) prime rate, (b) Federal Funds rate plus 0.5%, or (c) one-month LIBOR plus 1.0%, plus a spread of 0.0% to 0.5%, or (ii) LIBOR plus a spread of 0.9% to 1.5%, in each case as the applicable spread is determined based on the rating of the Company’s non-credit enhanced, senior unsecured long-term debt. Principal and any accrued and unpaid interest is due and payable upon maturity. Additionally, the Company will pay the lenders a quarterly commitment fee that varies based on the Company’s rating described above. The credit facility contains certain restrictive covenants including maintaining a total consolidated indebtedness to consolidated capitalization ratio of no more than 0.5 to 1.0 and maintaining unrestricted or unencumbered cash and investments of no less than $1.0 billion. As of June 28, 2015, the Company had no borrowings outstanding under the credit facility and was in compliance with all financial covenants.

Contractual Obligations

The Company’s contractual cash obligations relating to its Convertible Notes and other long-term debt as of June 28, 2015 were as follows:


	Long-term Debt
	(in thousands)
Payments due by period:
2016*	$	1,599,935
2017		—
2018		—
2019		—
2020		500,000
Thereafter		500,000

Total		2,599,935
Current portion of long-term debt		1,599,935

Long-term debt	$	1,000,000

As noted above, the conversion periods for the Convertible Notes are open as of June 28, 2015. As there is the potential for conversion at the option of the holder, the principal balance of the 2018 and 2041 Notes have been included in the one year payment period. As of August 6, 2015, none of the Convertible Notes have been converted during fiscal year 2015 or 2014.