Long Term Debt and Other Borrowings

As of June 24, 2018, and June 25, 2017, the Company’s outstanding debt consisted of the following:



	June 24, 2018							June 25, 2017
	Amount (in thousands)				Effective Interest Rate			Amount (in thousands)				Effective Interest Rate
Fixed-rate 1.25% Convertible Notes Due May 15, 2018 (“2018 Notes”)	—			⁽¹⁾	5.27	%		447,436			⁽²⁾	5.27	%
Fixed-rate 2.75% Senior Notes Due March 15, 2020 (“2020 Notes”)	500,000				2.88	%		500,000				2.88	%
Fixed-rate 2.80% Senior Notes Due June 15, 2021 (“2021 Notes”)	800,000				2.95	%		800,000				2.95	%
Fixed-rate 3.80% Senior Notes Due March 15, 2025 (“2025 Notes”)	500,000				3.87	%		500,000				3.87	%
Fixed-rate 2.625% Convertible Notes Due May 15, 2041 (“2041 Notes”)	326,953			⁽²⁾	4.28	%		631,074			⁽²⁾	4.28	%
Commercial paper	360,000				2.33	%	⁽³⁾	—				—	%
Total debt outstanding, at par	2,486,953							2,878,510
Unamortized discount	(85,196		)					(178,589		)
Fair value adjustment - interest rate contracts	(31,189		)					(10,102		)
Unamortized bond issuance costs	(1,820		)					(3,161		)
Total debt outstanding, at carrying value	$	2,368,748						$	2,686,658
Reported as:
Current portion of long-term debt	$	608,532		⁽²⁾				$	907,827		⁽²⁾
Long-term debt	1,760,216							1,778,831
Total debt outstanding, at carrying value	$	2,368,748						$	2,686,658

(1) The 2018 Notes were settled upon their maturity on May 15, 2018.

(2) As of the report date, these notes were convertible at the option of the bond holder. This is a result of the following condition being met; the market value of the Company’s Common Stock was greater than 130% of the convertible notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end. As a result, the 2041 Notes were classified in current liabilities and a portion of the equity component associated with the convertible notes, representing the unamortized discount, was classified in temporary equity on the Company’s Consolidated Balance Sheets. Upon closure of the conversion period, the notes not converted will be reclassified back into noncurrent liabilities and the temporary equity will be reclassified into permanent equity.

(3) Represents the weighted-average effective interest rate for all outstanding balances as of the report date.

The Company’s contractual cash obligations relating to its outstanding debt as of June 24, 2018, were as follows:



Payments Due by Fiscal Year:
	(in thousands)
2019 ⁽¹⁾	$	686,953
2020	500,000
2021	800,000
2022	—
2023	—
Thereafter	500,000
Total	$	2,486,953

(1) As noted above, the conversion period for the 2041 Notes is open as of June 24, 2018. As there is the potential for conversion at the option of the holder, the principal balance of the 2041 Notes has been included in the one-year payment period.

Convertible Senior Notes

In May 2011, the Company issued and sold $450 million in aggregate principal amount of 1.25% Convertible Senior Notes due May 2018 at par. The 2018 Notes were extinguished upon maturity on May 15, 2018. During the twelve months ended June 24, 2018, the majority the 2018 Notes were converted at the option of the bondholders. In settlement, the bondholders received 4.8 million shares of Common Stock. To offset the dilutive impact of the Common Stock consideration paid, the Company exercised the associated note hedge and received 4.8 million shares from counterparties. The remaining 2018 Notes were settled at par value, without conversion.

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 (collectively with 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 debt 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 table below, 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 table below. The principal value of Convertible Note conversions in the fiscal year ended June 24, 2018, were $751.3 million. During the quarter ended June 24, 2018 and in the subsequent period through August 10, 2018, the Company received notice of conversion for an additional $79.4 million principal value of 2041 Notes, which will settle in the quarter ending September 23, 2018.

Selected additional information regarding the Convertible Notes outstanding as of June 24, 2018, and June 25, 2017, is as follows:



	June 24, 2018		June 25, 2017
	2041 Notes		2018 Notes		2041 Notes
	(in thousands, except years, percentages, conversion rate, and conversion price)
Carrying amount of permanent equity component, net of tax	$	159,120	$	89,604	$	156,374
Carrying amount of temporary equity component, net of tax	$	78,192	$	15,186	$	154,675
Remaining amortization period (years)	22.9		0.8		23.8
Fair Value of Notes (Level 2)	$	1,736,653
Conversion rate (shares of common stock per $1,000 principal amount of notes)	30.1361
Conversion price (per share of common stock)	$	33.18
If-converted value in excess of par value	$	1,394,383
Estimated share dilution using average quarterly stock price of $195.01 per share	8,176

Convertible Note Hedges and Warrants

Concurrent with the issuance of the 2018 Notes, the Company purchased a convertible note hedge and sold warrants. The warrants settlement is contractually defined as net share settlement. The exercise price is adjusted for certain corporate events, including dividends on the Company’s Common Stock. As of June 24, 2018, the warrants associated with the 2018 Notes had not been exercised and remained outstanding.

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 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 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 2018 Notes. The exercise price is adjusted for certain corporate events, including dividends on the Company’s Common Stock. During the fiscal year ended June 24, 2018, the note hedge was partially settled, resulting in the receipt of approximately 4.8 million shares.

The following table presents the details of the outstanding warrants as of June 24, 2018:



	2018 Notes
	(shares in thousands)
Warrants:
Underlying shares	7,557
Estimated share dilution using average quarterly stock price $195.01 per share	4,770
Exercise price	$71.91
Expiration date range	August 15 - October 24, 2018

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 and $500 million aggregate principal amount of the Company’s Senior Notes due March 2025. The Company pays interest at an annual rate of 2.75% and 3.80% on the 2020 Notes and 2025 Notes, respectively, on a semi-annual basis on March 15 and September 15 of each year. During the year ended June 26, 2016, the Company entered into a series of interest rate contracts hedging the fair value of a portion of the 2025 Notes par value, whereby the Company receives a fixed rate and pays a variable rate based on a certain benchmark interest rate. Refer to Note 8 for additional information regarding these interest rate contracts.

The Company may redeem the 2020 Notes and 2025 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 these 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 these notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest.

On June 7, 2016, The Company completed a public offering of $800 million aggregate principal amount of Senior Notes due June 2021 (together with the 2020, and 2025 Notes, the “Senior Notes”). The Company pays interest at an annual rate of 2.80% on the 2021 Notes on a semi-annual basis on June 15 and December 15 of each year.

The Company may redeem the 2021 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 to the 2021 Notes and accrued and unpaid interest before May 15, 2021. The Company may redeem the 2021 Notes at par, plus accrued and unpaid interest at any time on or after May 15, 2021. 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 2021 Notes at a price equal to 101% of the principal amount of the respective note, plus accrued and unpaid interest.

Selected additional information regarding the Senior Notes outstanding as of June 24, 2018, is as follows:



	Remaining Amortization period	Fair Value of Notes (Level 2)
	(years)	(in thousands)
2020 Notes	1.7	$	497,250
2021 Notes	3.0	$	786,856
2025 Notes	6.7	$	497,560

Revolving Credit Facility

On October 13, 2017, the Company entered into Amendment No. 2 to Amended and Restated Credit Agreement, (the “2nd Amendment”), which amends the Company’s prior unsecured Credit Agreement, (as amended by the 2nd Amendment, the “Amended Credit Agreement”). Among other things, the Amended Credit Agreement provides for a $500 million increase to the Company’s revolving credit facility, from $750.0 million to $1.25 billion with a syndicate of lenders. The Amended Credit Agreement provides an expansion option that will allow the Company, subject to certain requirements, to request an increase in the facility of up to an additional $600.0 million, for a potential total commitment of $1.85 billion. The facility matures on October 13, 2022.

Interest on amounts borrowed under the credit facility is, at the Company’s option, based on (1) 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 (2) LIBOR multiplied by the statutory rate, 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 credit rating. The Amended and Restated Credit Agreement contains affirmative covenants, negative covenants, financial covenants, and events of default. As of June 24, 2018, the Company had no borrowings outstanding under the credit facility and was in compliance with all financial covenants.

Commercial Paper Program

On November 13, 2017, the Company established a new commercial paper program under which the Company may issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate principal amount of $1.25 billion. The net proceeds from the CP Program will be used for general corporate purposes, including repurchases of the Company’s Common Stock from time to time and under the Company’s stock repurchase program. As of June 24, 2018, borrowings under the CP Program totaled $360.0 million with a weighted-average interest rate of 2.33% and maturities of 90 days or less. Amounts available under the CP Program may be re-borrowed. The CP Program is backstopped by the Company’s Revolving Credit Arrangement.

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 Convertible Notes, the Senior Notes, the term loan agreement, commercial paper, and and the revolving credit facility during the fiscal years ended June 24, 2018, June 25, 2017, and June 26, 2016.



	Year Ended
	June 24, 2018		June 25, 2017			June 26, 2016
	(in thousands)
Contractual interest coupon	$	77,091	$	95,195		$	63,053
Amortization of interest discount	12,225		22,873			35,206
Amortization of issuance costs	2,034		2,414			35,315
Effect of interest rate contracts, net	3		(4,756		)	359
Total interest cost recognized	$	91,353	$	115,726		$	133,933

The increase in interest expense during the 12 months ended June 25, 2017, is primarily the result of the issuance of $2.4 billion of Senior Notes in June 2016, $1.6 billion of which was extinguished in October 2016. The decrease in amortization of issuance costs is primarily due to the termination of the bridge loan financing. The variation in amortization of interest rate contracts is primarily related to the interest rate contracts associated with the $1.6 billion senior notes extinguished in October 2016.