Convertible Senior Notes

In November 2013, the Company issued $175.0 million aggregate principal amount of 1.75% Convertible Senior Notes due November 15, 2018 ("Convertible Senior Notes") in a private placement offering at a price equal to 100% of the principal amount thereof. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, commencing May 15, 2014. The Company may be required to pay additional interest if the Company fails to comply with the reporting covenants or if the Company fails to timely file periodic reports with the SEC as outlined in the indenture governing the Convertible Senior Notes. The Convertible Senior Notes are unsecured and rank senior to the Company's future indebtedness that is expressly subordinated to the Convertible Senior Notes, equal with existing and future indebtedness that are not so subordinated and effectively subordinated to any future secured indebtedness to the extent of the value of the assets securing that indebtedness and to all existing and future debt and other liabilities and guarantees of the Company's subsidiaries. As of December 28, 2014, the remaining term of the Convertible Senior Notes was 3.9 years.

The Convertible Senior Notes are convertible, subject to certain conditions, into 97.1322 shares of the Company's common stock per $1,000 Convertible Senior Note, which is equivalent to an initial conversion price of $10.30 per share of common stock. The conversion rate is subject to adjustment for certain events as outlined in the indenture governing the Convertible Senior Notes. On or prior to the business day preceding August 15, 2018, holders may convert their Convertible Senior Notes at their option under the following circumstances: (1) during any fiscal quarter after December 29, 2013, if the closing price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Senior Notes 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 such date; or (3) upon the occurrence of certain corporate transactions or specified distributions described in the indenture. Upon conversion, the principal amount of the Convertible Senior Notes will be paid in cash and the conversion spread will be paid in shares or cash at the Company’s election. As of December 28, 2014, the “if-converted” value of the Convertible Notes did not exceed its principal amount and none of the conditions allowing holders of the Convertible Senior Notes to convert had been met.

The Company may not redeem the Convertible Senior Notes prior to maturity. However, in the event of a Make-Whole Fundamental Change, the holders of the Convertible Senior Notes have the option to require the Company to repurchase all or a portion of their Convertible Senior Notes at a purchase price equal to 100% of the principal amount of the Convertible Senior Notes, plus accrued and unpaid interest. Holders who convert their Convertible Senior Notes in connection with a Make-Whole Fundamental Change, as defined in the indenture, may be entitled to an increase in the conversion rate pursuant to the Make-Whole Fundamental Change table in the indenture.

Based on the terms of the embedded stock conversion option, the conversion option was determined to be indexed to the Company's stock. Accordingly, the conversion option was not accounted for separately as a derivative.

At the date of issuance, the Company separated the Convertible Senior Notes into liability and equity components. The liability component was determined by measuring the fair value of a similar instrument excluding the conversion feature. The equity component, which reflects the value of the conversion feature at issuance, was recognized as the difference between the proceeds from the issuance of the Convertible Senior Notes and the fair value of the liability component, and recorded as additional paid-in capital. The excess of the principal amount of the liability component over its carrying amount of approximately $32.0 million is being amortized to interest expense over the term of the Convertible Senior Notes, using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions of equity classification.

The Company recorded total issuance costs of approximately $5.3 million, which have been allocated on a pro-rata basis to the debt and equity components, consistent with the allocation of the Convertible Senior Notes. The debt issuance costs attributable to the liability component of approximately $4.3 million were recorded in other assets and are being amortized over the term of the Convertible Senior Notes. The debt issuance costs attributable to the equity component of approximately $1.0 million were netted against the equity component of the Convertible Senior Notes and recorded as a reduction to additional paid-in capital. Debt issuance costs, net of amortization, were approximately $3.6 million as of December 28, 2014.

The carrying values of the liability and equity components of the Convertible Senior Notes consisted of the following as of December 28, 2014:



	(in thousands)
Liability component:
Principal amount	$	175,000
Less: Unamortized debt discount	(25,626		)
Net carrying amount	149,374
Equity component	$	31,043

The following table sets forth total interest expense recognized related to the Convertible Senior Notes during the three and six months ended December 28, 2014 and December 29, 2013:



	Three Months Ended December 28, 2014			Three Months Ended December 29, 2013			Six Months Ended December 28, 2014			Six Months Ended December 29, 2013
	(in thousands)
Contractual coupon interest expense	$	766		$	383		$	1,531		$	383
Amortization of debt issuance costs	181			79			357			79
Accretion of debt discount	1,459			686			2,896			686
Total	$	2,406		$	1,148		$	4,784		$	1,148

Effective interest rate	6.62		%	6.62		%	6.62		%	6.62		%