Financing Arrangements

6 Months Ended

Jul. 03, 2011

7. Financing Arrangements

The following table reflects the carrying value of the Company’s convertible debt as of July 3, 2011 and January 2, 2011:


	July 3,			January 2,
	2011			2011
	(In millions)
1% Notes due 2013	$	1,150.0		$	1,150.0
Less: Unamortized interest discount		(125.9	)		(156.8	)

Net carrying amount of 1% Notes due 2013		1,024.1			993.2


1.5% Notes due 2017		1,000.0			1,000.0
Less: Unamortized interest discount		(264.9	)		(282.2	)

Net carrying amount of 1.5% Notes due 2017		735.1			717.8

Total convertible long-term debt	$	1,759.2		$	1,711.0

1% Convertible Senior Notes Due 2013. In May 2006, the Company issued and sold $1.15 billion in aggregate principal amount of 1% Convertible Senior Notes due May 15, 2013 (the “1% Notes due 2013”) at par. The 1% Notes due 2013 may be converted, under certain circumstances, based on an initial conversion rate of 12.1426 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $82.36 per share). The net proceeds to the Company from the offering of the 1% Notes due 2013 were $1.13 billion.

The Company separately accounts for the liability and equity components of the 1% Notes due 2013. The principal amount of the liability component of $753.5 million as of the date of issuance was recognized at the present value of its cash flows using a discount rate of 7.4%, the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The carrying value of the equity component was $396.5 million, as of July 3, 2011, unchanged from the date of issuance.

The following table presents the amount of interest cost recognized relating to the contractual interest coupon, amortization of bond issuance costs and amortization of the discount on the liability component for the three and six months ended July 3, 2011 and July 4, 2010.


	Three months ended				Six months ended
	July 3, 2011		July 4, 2010		July 3, 2011		July 4, 2010
	(In millions)
Contractual interest coupon	$	2.9	$	2.9	$	5.8	$	5.8
Amortization of bond issuance cost		0.9		0.9		1.7		1.7
Amortization of bond discount		15.3		14.2		30.3		28.1

Total interest cost recognized	$	19.1	$	18.0	$	37.8	$	35.6

The effective interest rate on the liability component was 7.4% for the three and six months ended July 3, 2011 and July 4, 2010. The remaining unamortized interest discount of $125.9 million as of July 3, 2011 will be amortized over the remaining life of the 1% Notes due 2013, which is approximately 1.9 years.

Concurrent with the issuance of the 1% Notes due 2013, the Company sold warrants to acquire shares of its common stock at an exercise price of $95.03 per share. As of July 3, 2011, the warrants had an expected life of approximately 2.1 years and expire in August 2013. At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. As of July 3, 2011, the warrants had not been exercised and remain outstanding. In addition, counterparties agreed to sell to the Company up to approximately 14.0 million shares of its common stock, which is the number of shares initially issuable upon conversion of the 1% Notes due 2013 in full, at a conversion price of $82.36 per share. This convertible bond hedge transaction will be settled in net shares and will terminate upon the earlier of the maturity date of the 1% Notes due 2013 or the first day that none of the 1% Notes due 2013 remain outstanding due to conversion or otherwise. Settlement of the convertible bond hedge in net shares on the expiration date would result in the Company receiving net shares equivalent to the number of shares issuable by it upon conversion of the 1% Notes due 2013. As of July 3, 2011, the Company had not purchased any shares under this convertible bond hedge agreement.

1.5% Convertible Senior Notes Due 2017. In August 2010, the Company issued and sold $1.0 billion in aggregate principal amount of 1.5% Convertible Senior Notes due August 15, 2017 (the “1.5% Notes due 2017”) at par. The 1.5% Notes due 2017 may be converted, under certain circumstances, based on an initial conversion rate of 19.0931 shares of common stock per $1,000 principal amount of notes (which represents an initial conversion price of approximately $52.37 per share). The net proceeds to the Company from the sale of the 1.5% Notes due 2017 were $981.0 million.

The Company separately accounts for the liability and equity components of the 1.5% Notes due 2017. The principal amount of the liability component of $706.0 million as of the date of issuance was recognized at the present value of its cash flows using a discount rate of 6.85%, the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The carrying value of the equity component was $294.0 million as of July 3, 2011, unchanged from the date of issuance.


	Three months		Six months
	ended		ended
	July 3,		July 3,
	2011		2011
	(In millions)
Contractual interest coupon	$	3.7	$	7.5
Amortization of bond issuance costs		0.7		1.4
Amortization of bond discount		8.5		16.9

Total interest cost recognized	$	12.9	$	25.8

The effective interest rate on the liability component was 6.85% for the three and six months ended July 3, 2011. The remaining unamortized interest discount of $264.9 million as of July 3, 2011 will be amortized over the remaining life of the 1.5% Notes due 2017, which is approximately 6.1 years.

Concurrent with the issuance of the 1.5% Notes due 2017, the Company sold warrants to acquire shares of its common stock at an exercise price of $73.33 per share. As of July 3, 2011, the warrants had an expected life of approximately 6.4 years and expire over 40 different dates from November 13, 2017 through January 10, 2018. At each expiration date, the Company may, at its option, elect to settle the warrants on a net share basis. As of July 3, 2011, the warrants had not been exercised and remain outstanding. In addition, counterparties agreed to sell to the Company up to approximately 19.1 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the 1.5% Notes due 2017 in full, at a price of $52.37 per share. This convertible bond hedge transaction will be settled in net shares and will terminate upon the earlier of the maturity date of the 1.5% Notes due 2017 or the first day that none of the 1.5% Notes due 2017 remain outstanding due to conversion or otherwise. Settlement of the convertible bond hedge in net shares 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 1.5% Notes due 2017. As of July 3, 2011, the Company had not purchased any shares under this convertible bond hedge agreement.

- 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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