Note 10. Debts and Letters of Credit

As of December 31, 2016 and July 2, 2016, the Company’s long-term debt on the Consolidated Balance Sheets represented the carrying amount of the liability component, net of unamortized debt discounts and issuance cost, of the 0.625% Senior Convertible Notes as discussed below. The following table presents the carrying amounts of the liability and equity components (in millions):



	December 31, 2016			July 2, 2016
Principal amount of 0.625% Senior Convertible Notes	$	650.0		$	650.0
Unamortized discount of liability component	(47.8		)	(61.7		)
Unamortized debt issuance cost (1)	$	(3.9	)	$	(5.0	)
Carrying amount of liability component	$	598.3		$	583.3

Carrying amount of equity component (2)	$	134.4		$	134.4

(1)

In April 2015, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with debt discounts or premiums. This guidance was effective for the Company in the first quarter of fiscal 2017 for its convertible debt, and was applied retrospectively for all periods reported.


(2)	Included in Accumulated paid-in-capital on the Consolidated Balance Sheets.

The Company was in compliance with all debt covenants and held no short term debt as of December 31, 2016 and July 2, 2016.

0.625% Senior Convertible Notes (“2033 Notes”)

On August 21, 2013, the Company issued $650.0 million aggregate principal amount of 0.625% Senior Convertible Notes due 2033 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The proceeds from the 2033 Notes amounted to $636.3 million after issuance costs. The 2033 Notes are an unsecured obligation of the Company and bear interest at an annual rate of 0.625% payable in cash semi-annually in arrears on February 15 and August 15 of each year. The 2033 Notes mature on August 15, 2033 unless earlier converted, redeemed or repurchased.

Following the Separation on August 1, 2015, the conversion price per share was adjusted pursuant to the terms of the 2033 Notes relating to the occurrence of the Separation. Effective as of the end of the business day on August 17, 2015, the initial conversion price per share was adjusted to $11.28 per share of the Company’s common stock traded on NASDAQ under the ticker symbol “VIAV.” The 2033 Notes and its terms are described in “Note 11. Debts and Letters of Credit” of the Company’s Annual Report on Form 10-K for the year ended July 2, 2016.

Based on quoted market prices as of December 31, 2016 and July 2, 2016, the fair value of the 2033 Notes was approximately $672.0 million and $633.0 million. The 2033 Notes are classified within Level 2 as they are not actively traded in markets.

The following table presents the effective interest rate and the interest expense for the contractual interest and the accretion of debt discount (in millions, except for the effective interest rate):



	Three Months Ended						Six Months Ended
	December 31, 2016			January 2, 2016			December 31, 2016			January 2, 2016
Effective interest rate	5.4		%	5.4		%	5.4		%	5.4		%
Interest expense-contractual interest	$	1.0		$	1.0		$	2.0		$	2.0
Accretion of debt discount	7.0			6.6			13.9			13.2

Outstanding Letters of Credit

As of December 31, 2016, the Company had 12 standby letters of credit totaling $15.2 million.