Note 6. Debt

The following table summarizes components of our debt:


	As of March 29, 2013
		Effective
	Face Value	Interest Rate		Fair Value ⁽²⁾
	(In millions)
3.95% Senior Notes, due June 2022 (“3.95% notes”)	$ 400	4.05%		$ 412
2.75% Senior Notes, due June 2017 (“2.75% notes due 2017”)	600	2.79%		620
4.20% Senior Notes, due September 2020 (“4.20% notes”)	750	4.25%		799
2.75% Senior Notes, due September 2015 (“2.75% notes due 2015”)	350	2.76%		363
1.00% Convertible Senior Notes, due June 2013 (“1.00% notes”)	1,000	6.78%	⁽¹⁾	1,291

	As of March 30, 2012
		Effective
	Face Value	Interest Rate		Fair Value ⁽²⁾
	(In millions)
4.20% Senior Notes, due September 2020 (“4.20% notes”)	$ 750	4.25%		$ 771
2.75% Senior Notes, due September 2015 (“2.75% notes due 2015”)	350	2.76%		363
1.00% Convertible Senior Notes, due June 2013 (“1.00% notes”)	1,000	6.78%	⁽¹⁾	1,115

____________

⁽¹⁾

Represents the interest rate on our debt for accounting purposes while taking into account the effects of amortization of debt discount. Although the effective interest rates of the 1.00% notes were 6.78% for fiscal 2013 and 2012, we are making cash interest payments at the stated coupon rates of 1.00%.

⁽²⁾	The fair value of debt relies on Level 2 inputs, which is based on market prices for similar debt instruments and resulting yields. For convertible senior notes, the fair value represents that of the liability component. See Note 1 for our accounting policy of estimating the fair value of our debt.

As of March 29, 2013, future maturities of debt by fiscal years are as follows (in millions):


2014	$ 1,000
2015	”-“
2016	350
2017	”-“
Thereafter	1,750
Total	$ 3,100

Senior Notes

In fiscal 2013, we issued the 3.95% notes and 2.75% notes due 2017. These are senior unsecured obligations that rank equally in right of payment with our future unsecured, unsubordinated obligations and are redeemable by us at any time, subject to a “make-whole” premium. Our proceeds were $1.0 billion, less issuance discount of $4 million resulting from sale of the notes at a yield slightly above the stated coupon rate. We also incurred issuance costs of $6 million. Both the discount and issuance costs are being amortized as incremental interest expense over the respective terms of the notes. Interest on these notes is payable semiannually. Contractual interest expense was $26 million in fiscal 2013.

In fiscal 2011, we issued the 4.20% notes and 2.75% notes due 2015. These are senior unsecured obligations that rank equally in right of payment with our future unsecured, unsubordinated obligations and are redeemable by us at any time, subject to a “make-whole” premium. Our proceeds from the issuance of the senior notes were $1.1 billion, net of an issuance discount. Interest on these notes is payable semiannually. Contractual interest expense was $41 million, $41 million, and $22 million in fiscal 2013, 2012, and 2011, respectively.

Convertible Senior Notes

As of March 29, 2013, $1.0 billion of 1.00% notes is included in Current portion of long-term debt in the Consolidated Balance Sheet. Interest on our convertible senior notes is payable semiannually. Contractual interest expense was $10 million, $11 million, and $16 million in fiscal 2013, 2012, and 2011, respectively. Amortization of the debt discount was $55 million, $56 million, and $96 million in fiscal 2013, 2012, and 2011, respectively.

The following table summarizes information regarding the equity and liability components of the convertible senior notes:


	As of
	March 29, 2013	March 30, 2012
	(In millions)
Principal amount	$ 1,000	$ 1,000
Equity component	313	313
Liability component	997	941
Unamortized discount	3	59

Conversion features. Each $1,000 of principal of the 1.00% notes will initially be convertible into 52.2951 shares of our common stock, which is the equivalent of $19.12 per share, subject to adjustment upon the occurrence of specified events. Holders of the 1.00% notes may convert their 1.00% notes prior to maturity during specified periods as follows: (1) during any calendar quarter, if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the applicable conversion price per share; (2) if specified corporate transactions, including a change in control, occur; (3) at any time on or after April 5, 2013; or (4) during the five business-day period after any five consecutive trading-day period during which the trading price of the 1.00% notes falls below a certain threshold. Upon conversion, we would pay the holder the cash value of the applicable number of shares of our common stock, up to the principal amount of the note. Amounts in excess of the principal amount, if any, may be paid in cash or in stock at our option. Holders who convert their 1.00% notes in connection with a change in control may be entitled to a “make whole” premium in the form of an increase in the conversion rate. As of March 29, 2013, none of the conditions allowing holders of the 1.00% notes to convert had been met.

Concurrently with the issuance of the 1.00% notes, we entered into note hedge transactions with affiliates of certain initial purchasers whereby we have the option to purchase up to 52 million shares, which corresponds to the conversion price $19.12 per share of the notes and is equal to the number of shares of our common stock that notionally underlie the notes. The outstanding options for 52 million shares will expire on June 15, 2013. The options must be settled in the same manner as we settle the 1.00% notes (cash or net shares). Separately, we entered into warrants to affiliates of certain initial purchasers whereby they have the option to purchase up to 52 million shares of our common stock at a price of $27.3175 per share. The warrants expire on various dates through August 30, 2013 and must be settled in net shares on any date which the price per share is at or exceeds $27.3175.

Effect of conversion on earning per share (“EPS”). In periods prior to conversion, we have included the effect of the additional shares that may be issued if our common stock price exceeds $19.12 per share using the treasury stock method since the notes may be settled in cash or shares at our option. As a result, for the first $1.00 by which the average price of our common stock for a quarterly period exceeds $19.12 per share, the dilutive effect is approximately 2.6 million shares. As the share price continues to increase, additional dilution would occur, and when the average price reaches $27.3175 per share it would yield a dilutive effect of approximately 15.7 million shares. If the average price of our common stock exceeds $27.3175 per share for any quarterly period up through their expiration dates, there is an additional dilutive effect for potential shares that may be issued related to the warrants using the treasury stock method. For the first $1.00 by which the average price exceeds $27.3175 per share, there would be a dilutive effect from both the 1.00% notes and the warrants totaling approximately 18.8 million shares. As the share price continues to increase, additional dilution would occur but at a declining rate. See Note 13 for information regarding the dilutive effect on EPS.

In periods prior to conversion, the note hedge transactions are not considered for purposes of the EPS calculation, as their effect would be anti-dilutive. Upon conversion, the note hedge will automatically serve to neutralize the dilutive effect of the 1.00% notes when the stock price is above $19.12 per share. For example, if upon conversion the price of our common stock was $28.3175 per share, the cumulative effect of approximately 18.8 million shares in the example above would be reduced to approximately 1.8 million shares. The preceding calculations assume that the average price of our common stock exceeds the respective conversion prices during the period for which dilutive EPS is calculated and excludes any potential adjustments to the conversion ratio provided under the terms of the 1.00% notes.

In the period of conversion, the 1.00% notes will have no impact on diluted EPS if the notes are settled in cash and will have an impact on dilutive EPS if the notes are settled in shares upon conversion.

Revolving credit facility

In the first quarter of fiscal 2013, we amended our credit facility agreement. The amendment extended the term of the credit facility to June 7, 2017 and revolving loans under the credit facility will bear interest, at our option, either at a rate equal to a) LIBOR plus a margin based on debt ratings, as defined in the credit facility agreement or b) the bank’s base rate plus a margin based on debt ratings, as defined in the credit facility agreement. Under the terms of this credit facility, we must comply with certain financial and non-financial covenants, including a covenant to maintain a specified ratio of debt to EBITDA (earnings before interest, taxes, depreciation and amortization). As of March 29, 2013, we were in compliance with all financial covenants, and no amounts were outstanding.