Debt

9 Months Ended

Apr. 02, 2022

Debt Disclosure [Abstract]

Debt

Note 9. Debt

Convertible Notes

2028 Notes

In March 2022, we issued $861.0 million in aggregate principal amount of 0.50% Convertible Notes due in 2028 (the “2028 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2028 Notes are governed by an indenture between the Company and U.S. Bank Trust Company National Association (as successor in interest to U.S. Bank National Association), as a trustee (the “2028 Indenture”). The 2028 Notes are unsecured and do not contain any financial covenants, restrictions on dividends, incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us.

The net proceeds from the sale of the 2028 Notes was $854.8 million, after deducting $6.2 million in issuance costs. In addition, we incurred $0.7 million in professional fees in connection with this transaction. Concurrent with the issuance of the 2028 Notes, we used $200.0 million of the net proceeds to repurchase our common stock in privately negotiated transactions. We intend to use the remaining net proceeds for general corporate purposes, which may include capital expenditures and working capital.

The 2028 Notes bear interest at a rate of 0.50% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2022. The 2028 Notes will mature on June 15, 2028, unless earlier redeemed, repurchased by us, or converted pursuant to the terms.

The initial conversion rate is 7.6319 shares of common stock per $1,000 principal amount of the 2028 Notes (which is equivalent to an initial conversion price of approximately $131.03 per share). The conversion rate is subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change or our issuance of a notice of redemption, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert the 2028 Notes in connection with such make-whole fundamental change or notice of redemption.

Prior to the close of business on the business day immediately preceding March 15, 2028, holders of the 2028 Notes may convert their 2028 Notes only under the following circumstances:

•during any fiscal quarter commencing after July 2, 2022 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the 30

consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% if the applicable conversion price on each applicable trading day;

•during the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2028 Notes for each trading day of such measurement was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day;

•if the Company calls any or all of the 2028 Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date; or

•upon the occurrence of specified corporate events, as specified in the 2028 Indentures.

On or after March 15, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2028 Notes at any time. Upon conversion, we may satisfy our conversion obligation in cash, shares of common stock or a combination of cash and shares of common stock, at our election.

We may redeem for cash all or any of the 2028 Notes, at our option (subject to the partial redemption limitation set forth in the 2028 Indenture), on or after June 20, 2025, if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2028 Notes. If we elect to redeem fewer than all of the outstanding 2028 Notes, at least $100.0 million aggregate principal amount of the 2028 Notes must be outstanding and not subject to redemption as of the redemption notice date. Upon the occurrence of a fundamental change (as defined in the 2028 Indenture), holders may require the Company to repurchase all or a portion of their 2028 Notes for cash at a price equal to 100% of the principal amount of the 2028 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

We bifurcated the principal amount of the 2028 Notes into liability and equity components. The liability component of the 2028 Notes was valued at $629.8 million based on the contractual cash flow discounted at an appropriate comparable market on non-convertible debt borrowing rate at the date of issuance, which was 5.7%, with the equity component representing the residual amount of the proceeds of $231.2 million, which was recorded as a debt discount. The issuance and other related costs of $6.9 million were allocated pro rata based on the relative carrying amounts of the liability and equity components.

The debt discount and debt issuance costs attributable to the liability component will be amortized to interest expense using an effective interest rate of 5.7% over the expected life of the 2028 Notes. Debt issuance costs attributable to the equity component are netted against the equity component in stockholders’ equity, and the equity component is not remeasured as long as it continues to meet the conditions for equity classification.

2026 Notes

In December 2019, we issued $1,050.0 million in aggregate principal amount of 0.50% Convertible Notes due in 2026 (the “2026 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities. The 2026 Notes are governed by an indenture between the Company and U.S. Bank Trust Company National Association (as successor in interest to U.S. Bank National Association, as a trustee (the “2026 Indenture”). We used approximately $196.0 million of the net proceeds of the offering to repay in full all amounts outstanding under our term loan credit facility, and a portion of the net proceeds of the offering to purchase approximately $200.0 million of our common stock concurrently with the pricing of the offering in privately negotiated transactions. The 2026 Notes are unsecured and do not contain any financial covenants, restrictions on dividends, incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us.

The 2026 Notes bear interest at a rate of 0.50% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2020. The 2026 Notes will mature on December 15, 2026, unless earlier redeemed, repurchased by us, or converted pursuant to their terms.

The initial conversion rate is 10.0711 shares of common stock per $1,000 principal amount of the 2026 Notes (which is equivalent to an initial conversion price of approximately $99.29 per share). The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change or our issuance of a notice of redemption, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert the 2026 Notes in connection with such make-whole fundamental change or notice of redemption.

Prior to the close of business on the business day immediately preceding September 15, 2026, holders of the 2026 Notes may convert their 2026 Notes only under certain circumstances discussed in detail in our Annual Report on Form 10-K for the year ended July 3, 2021.

2024 Notes

In March 2017, we issued $450 million of 0.25% Convertible Notes due in 2024 (the “2024 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2024 Notes are governed by an indenture between the Company, as the issuer, and U.S. Bank Trust Company National Association (as successor in interest to U.S. Bank National Association), as trustee (the “2024 Indenture”). The 2024 Notes are unsecured and do not contain any financial covenants, restrictions on dividends, incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us.

The 2024 Notes bear interest at a rate of 0.25% per year. Interest on the 2024 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The 2024 Notes will mature on March 15, 2024, unless earlier repurchased by us or converted pursuant to their terms.

The initial conversion rate of the 2024 Notes is 16.4965 shares of common stock per $1,000 principal amount of 2024 Notes, which is equivalent to an initial conversion price of approximately $60.62 per share. Prior to the close of business on the business day immediately preceding December 15, 2023, each holder of the 2024 Notes may convert their 2024 Notes only under certain circumstances discussed in detail in our Annual Report on Form 10-K for the year ended July 3, 2021.

During the nine months ended April 2, 2022, we received and settled in cash, conversion requests of less than $0.1 million principal amount of the 2024 Notes. From April 1, 2022 through May 4, 2022, we received requests for conversion of approximately $1.8 million in principal amount of the 2024 Notes. Such conversion will be settled in the fourth quarter of fiscal 2022 with a combination of cash and shares of the Company’s common stock in accordance with the applicable indenture.

Convertible Notes

Our convertible notes consisted of the following components as of the periods presented (in millions):

Liability component:	April 2, 2022						July 3, 2021
	2024 Notes (1)		2026 Notes (2)		2028 Notes (3)		2024 Notes		2026 Notes
Principal	$	450.0	$	1,050.0	$	861.0	$	450.0	$	1,050.0
Unamortized debt discount and issuance costs	(43.9)		(229.2)		(234.2)		(59.3)		(260.2)
Net carrying amount of the liability component	$	406.1	$	820.8	$	626.8	$	390.7	$	789.8

(1) Since the closing price of our stock exceeded $78.80 (or 130% of the conversion price of $60.62) for 20 of the last 30 trading days of the third quarter of fiscal 2022, the 2024 Notes have become convertible at the option of the holders. Therefore, the debt component of our 2024 Notes as of April 2, 2022 has been classified as current liabilities in our condensed consolidated balance sheet.

(2) If the closing price of our stock exceeds $129.08 (or 130% of the conversion price of $99.29) for 20 of the last 30 trading days of any future quarter, our 2026 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our condensed consolidated balance sheet.

(3) During any fiscal quarter commencing after July 2, 2022, if the closing price of our stock exceeds $170.34 (or 130% of the conversion price of $131.03) for 20 of the last 30 trading days of such quarter, our 2028 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our condensed consolidated balance sheet.

The following table sets forth interest expense information related to the convertible notes for the periods presented (in millions):

	Three Months Ended				Nine Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Contractual interest expense	$	1.9	$	1.6	$	5.1	$	4.8
Amortization of the debt discount and debt issuance costs	17.8		14.8		48.6		43.9
Total interest expense	$	19.7	$	16.4	$	53.7	$	48.7

The future interest and principal payments related to our convertible notes are as follows as of April 2, 2022 (in millions):

Fiscal Years	2024 Notes		2026 Notes		2028 Notes		Total
Remainder of 2022	$	1.8	$	2.7	$	1.2	$	5.7
2023	1.1		5.3		4.3		10.7
2024	449.4		5.3		4.3		459.0
2025	—		5.3		4.3		9.6
2026	—		5.3		4.3		9.6
Thereafter	—		1,052.4		869.6		1,922.0
Total convertible notes payments	$	452.3	$	1,076.3	$	888.0	$	2,416.6

The principal balances of our Notes are reflected in the payment periods in the table above based on their respective contractual maturities.