Debts and Letters of Credit

3 Months Ended

Sep. 27, 2014

Note 10. Debts and Letters of Credit

As of September 27, 2014 and June 28, 2014 the Company’s Long-term debt on the Consolidated Balance Sheets represented the carrying amount of the liability component of the 0.625% Senior Convertible Notes as discussed below. The following table presents the details of the Company’s debt (in millions):

		September 27,		June 28,
		2014		2014
Principal amount of 0.625% Senior Convertible Notes		$	650.0	$	650.0
Unamortized discount of liability component			(107.5)		(113.7)
Carrying amount of liability component		$	542.5	$	536.3

Carrying amount of equity component (1)		$	134.4	$	134.4

(1)	Included in Additional 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 September 27, 2014 and June 28, 2014, respectively.

0.625% Senior Convertible Notes

On August 21, 2013, the Company issued $650.0 million aggregate principal amount of 0.625% Senior Convertible Notes due 2033 (the “2033 Notes”) 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. The 2033 Notes and its terms are described in “Note 10. Debts and Letters of Credit” of the Company’s Annual Report on Form 10-K for the year ended June 28, 2014. During the three months ended September 27, 2014, the price of the Company's common stock did not exceed the initial conversion price of $18.83 per share and no conversion features were triggered.

In accordance with the authoritative accounting guidance, the Company separated the 2033 Notes into liability and equity components. The carrying value of the liability component at issuance was calculated as the present value of its cash flows using a discount rate of 5.4% based on the 5-year swap rate plus credit spread as of the issuance date. The credit spread for the Company is based on the historical average “yield to worst” rate for BB rated issuers. The difference between the 2033 Notes principal and the carrying value of the liability component, representing the value of conversion premium assigned to the equity component, was recorded as a debt discount on the issuance date and is being accreted using the effective interest rate of 5.4% over the period from the issuance date through August 15, 2018 as a non-cash charge to interest expense. The carrying value of the liability component was determined to be $515.6 million, and the equity component, or debt discount, of the 2033 Notes was determined to be $134.4 million. As of September 27, 2014, the expected remaining term of the 2033 Notes is 3.9 years.

In connection with the issuance of the 2033 Notes, the Company incurred $13.7 million of issuance costs, which were bifurcated into the debt issuance costs, attributable to the liability component of $10.9 million and the equity issuance costs, attributable to the equity component of $2.8 million based on their relative values. The debt issuance costs were capitalized and are being amortized to interest expense using the effective interest rate method from issuance date through August 15, 2018. The equity issuance costs were netted against the equity component in additional paid-in capital at the issuance date. As of September 27, 2014, the unamortized portion of the debt issuance costs related to the 2033 Notes was $8.7 million, which was included in Other non-current assets on the Consolidated Balance Sheets.

Based on quoted market prices as of September 27, 2014 and June 28, 2014, the fair market value of the 2033 Notes was approximately $657.1 million and $653.0 million, respectively. 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
	September 27,			September 28,
	2014			2013
Effective interest rate		5.4	%		5.4	%
Interest expense-contractual interest	$	1.0		$	0.4
Accretion of debt discount		6.2			2.6

Revolving Credit Facility

On August 21, 2013, in addition to the close of the 2033 Notes offering, the Company terminated its existing $250.0 million revolving credit facility, which had no amounts outstanding upon termination. The $1.3 million of unamortized debt issuance costs was fully amortized to interest expense upon termination in the first quarter of fiscal 2014.

Outstanding Letters of Credit

As of September 27, 2014, the Company had 13 standby letters of credit totaling $35.5 million.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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