Financing Arrangements

The following table reflects the carrying value of the Company’s convertible debt (in thousands):



	March 30, 2014			December 29, 2013
1.5% Notes due 2017	$	1,000,000		$	1,000,000
Less: Unamortized bond discount	(159,820		)	(170,208		)
Net carrying amount of 1.5% Notes due 2017	840,180			829,792
0.5% Notes due 2020	1,500,000			1,500,000
Less: Unamortized bond discount	(333,503		)	(344,429		)
Net carrying amount of 0.5% Notes due 2020	1,166,497			1,155,571
Total convertible debt	2,006,677			1,985,363
Less: Convertible short-term debt	(840,180		)	—
Convertible long-term debt	$	1,166,497		$	1,985,363

1% Convertible Senior Notes Due 2013. On May 15, 2013, the maturity date for the 1% Convertible Senior Notes due May 15, 2013 (“1% Notes due 2013”), the Company settled the 1% Notes due 2013 through an all-cash transaction for principal and accrued interest of $928.1 million and $4.6 million, respectively. As of the date of the redemption, the Company had no further obligations related to the 1% Notes due 2013. In connection with the maturity of the 1% Notes due 2013, the associated convertible bond hedge and warrant transactions also terminated, with no shares purchased under the convertible bond hedge agreement and no exercises of the warrants.

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 1% Notes due 2013 (in thousands):



	Three months ended
	March 31, 2013
Contractual interest coupon	$	2,319
Amortization of bond issuance costs	696
Amortization of bond discount	14,058
Total interest cost recognized	$	17,073

The effective interest rate on the liability component of the 1% Notes due 2013 was 7.4% for the three months ended March 31, 2013.

1.5% Convertible Senior Notes Due 2017. In August 2010, the Company issued and sold $1.0 billion in aggregate principal amount of 1.5% Convertible Senior Notes due August 15, 2017 (“1.5% Notes due 2017”) at par. The 1.5% Notes due 2017 may be converted, under certain circumstances described below, based on an initial conversion rate of 19.0931 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $52.37 per share). The 1.5% Notes due 2017 contain provisions where the conversion rate and conversion price are adjusted if the Company pays a cash dividend or makes a distribution to all or substantially all holders of its common stock. Accordingly, as of March 30, 2014, the conversion rate was adjusted for dividends paid to date to 19.2935 shares of common stock per $1,000 principal amount of notes (which represents a conversion price of approximately $51.83 per share). The net proceeds to the Company from the sale of the 1.5% Notes due 2017 were $981.0 million.

The Company separately accounts for the liability and equity components of the 1.5% Notes due 2017. The principal amount of the liability component of $706.0 million as of the date of issuance was recognized at the present value of its cash flows using a discount rate of 6.85%, the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. As of March 30, 2014, after recognition of $159.8 million in Convertible short-term debt conversion obligation, the carrying value of the equity component was $134.2 million.



	Three months ended
	March 30, 2014		March 31, 2013
Contractual interest coupon	$	3,750	$	3,750
Amortization of bond issuance costs	667		667
Amortization of bond discount	10,192		9,519
Total interest cost recognized	$	14,609	$	13,936

The effective interest rate on the liability component of the 1.5% Notes due 2017 was 6.85% for each of the three months ended March 30, 2014 and March 31, 2013. The remaining unamortized bond discount of $159.8 million as of March 30, 2014 will be amortized over the remaining life of the 1.5% Notes due 2017, which is approximately 3.4 years.

The conversion provision of the 1.5% Notes due 2017 allows the holders the option to convert their notes during the following calendar quarter if the Company’s stock price exceeds 130% of the conversion price of the 1.5% Notes due 2017 for at least 20 trading days during the last 30 consecutive trading days of the current calendar quarter. The conversion threshold was met during the calendar quarter ended March 31, 2014 and the 1.5% Notes due 2017 became convertible at the holders’ option beginning on April 1, 2014 and ending June 30, 2014. As such, the carrying value of the 1.5% Notes due 2017 was classified as a current liability and the difference between the principal amount payable in cash upon conversion and the carrying value of the 1.5% Notes due 2017 was reclassified from Stockholders’ equity to Convertible short-term debt conversion obligation on the Company’s Condensed Consolidated Balance Sheet as of March 30, 2014, and will remain so while the notes are convertible. The determination of whether or not the 1.5% Notes due 2017 are convertible must continue to be performed on a calendar-quarter basis. Consequently, the 1.5% Notes due 2017 may be reclassified as long-term debt if the conversion threshold is not met in future quarters. Upon conversion of any of the 1.5% Notes due 2017, the Company will deliver cash up to the principal amount of the 1.5% Notes due 2017 and shares of the Company’s common stock with respect to any conversion value greater than the principal amount of the 1.5% Notes due 2017. As of March 30, 2014, no 1.5% Notes due 2017 had been converted. Based on the closing price of the Company’s common stock of $80.61 on March 30, 2014, if all of the 1.5% Notes due 2017 were converted, it would result in 6.9 million shares being distributed to the holders.

Concurrent with the issuance of the 1.5% Notes due 2017, the Company sold warrants to acquire up to approximately 19.1 million shares of its common stock at an exercise price of $73.3250 per share. The 1.5% Notes due 2017 contain 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 March 30, 2014, holders of the warrants may acquire up to approximately 19.3 million shares of the Company’s common stock at a strike price of $72.5633 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 maturity date, the Company may, at its option, elect to settle the warrants on a net share basis. As of March 30, 2014, the warrants had not been exercised and remain outstanding. In addition, concurrent with the issuance of the 1.5% Notes due 2017, the Company entered into a convertible bond hedge transaction in which counterparties initially agreed to sell to the Company up to approximately 19.1 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the 1.5% Notes due 2017 in full, at a price of $52.37 per share. The 1.5% Notes due 2017 contain provisions where the number of shares to be sold under the convertible bond hedge transaction and the conversion price will be 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 March 30, 2014, the counterparties may acquire up to approximately 19.3 million shares of the Company’s common stock, which is the number of shares issuable upon conversion of the 1.5% Notes due 2017 in full, at a price of $51.83 per share. This convertible bond hedge transaction will be settled in net shares and will terminate upon the earlier of the maturity date of the 1.5% Notes due 2017 or the first day that 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. As of March 30, 2014, the Company had not purchased any shares under this convertible bond hedge agreement.

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 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. As of March 30, 2014, 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 March 30, 2014, the carrying value of the equity component of $352.0 million was unchanged from the date of issuance.



	Three months ended
	March 30, 2014
Contractual interest coupon	$	1,875
Amortization of bond issuance costs	659
Amortization of bond discount	10,771
Total interest cost recognized	$	13,305

The effective interest rate on the liability component of the 0.5% Notes due 2020 was 4.43% for the three months ended March 30, 2014. The remaining unamortized bond discount of $333.5 million as of March 30, 2014 will be amortized over the remaining life of the 0.5% Notes due 2020, which is approximately 6.5 years.

Concurrent with the issuance of the 0.5% Notes due 2020, the Company sold warrants to acquire up to approximately 16.3 million shares of its common stock at an exercise price of $122.9220 per share. The 0.5% Notes due 2020 contain 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 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. The warrants mature on 40 different dates from January 13, 2021 through March 11, 2021 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 March 30, 2014, the warrants had not been exercised and remain outstanding. In addition, concurrent with the issuance of the 0.5% Notes due 2020, the Company entered into a convertible bond hedge transaction in which counterparties agreed to sell to the Company up to approximately 16.3 million shares of the Company’s common stock, which is the number of shares issuable upon conversion of the 0.5% Notes due 2020 in full, at a price of $92.19 per share. The 0.5% Notes due 2020 contain provisions where the number of shares to be sold under the convertible bond hedge transaction and the conversion price will be 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. This convertible bond hedge transaction will be settled in net shares and will terminate upon the earlier of the maturity date of the 0.5% Notes due 2020 or the first day that none of the 0.5% Notes due 2020 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 0.5% Notes due 2020, 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 0.5% Notes due 2020. As of March 30, 2014, the Company had not purchased any shares under this convertible bond hedge agreement.