Financing Arrangements

The following table reflects the carrying value of the Company’s convertible debt (in thousands):



	April 1, 2012			January 1, 2012
1% Notes due 2013	$	1,150,000		$	1,150,000
Less: Notes redeemed (valued at par)	(221,939		)	(221,939		)
Unamortized interest discount	(62,649		)	(75,915		)
Net carrying amount of 1% Notes due 2013	865,412			852,146

1.5% Notes due 2017	1,000,000			1,000,000
Less: Unamortized interest discount	(238,178		)	(247,235		)
Net carrying amount of 1.5% Notes due 2017	761,822			752,765
Total convertible long-term debt	$	1,627,234		$	1,604,911

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 and has subsequently repurchased $221.9 million of principal amount of these notes. 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. As of April 1, 2012, the Company had $928.1 million outstanding in aggregate principal amount at par.

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 $394.3 million as of April 1, 2012 and January 1, 2012.

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 of the 1% Notes due 2013 (in thousands):



	Three months ended
	April 1, 2012		April 3, 2011
Contractual interest coupon	$	2,319	$	2,874
Amortization of bond issuance costs	696		857
Amortization of bond discount	13,025		14,994
Total interest cost recognized	$	16,040	$	18,725

The effective interest rate on the liability component of the 1% Notes due 2013 was 7.4% for each of the three months ended April 1, 2012 and April 3, 2011. The remaining bond discount of $62.6 million as of April 1, 2012 will be amortized over the remaining life of the 1% Notes due 2013, which is approximately 1.1 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. Due to the repurchase of a portion of the outstanding 1% Notes due 2013 in fiscal year 2011, the Company unwound a pro-rata portion of the warrants. The counterparties may now purchase up to 11.3 million shares of the Company’s common stock at an exercise price of $95.03 per share. As of April 1, 2012, the warrants had an expected life of approximately 1.4 years and will expire on 20 different dates from August 23, 2013 through September 20, 2013. At expiration, the Company may, at its option, elect to settle the warrants on a net share basis. In addition, at issuance, 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. As of April 1, 2012, the remaining warrants had not been exercised and remain outstanding. Due to the repurchase of a portion of the outstanding 1% Notes due 2013 in fiscal year 2011, the Company unwound a pro-rata portion of the convertible bond hedge. The Company may now purchase up to 11.3 million shares of its common stock 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 April 1, 2012, the Company had not purchased any shares under the remaining 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 described below, 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 April 1, 2012, unchanged from the date of issuance.



	Three months ended
	April 1, 2012		April 3, 2011
Contractual interest coupon	$	3,750	$	3,750
Amortization of bond issuance costs	667		681
Amortization of bond discount	8,861		8,371
Total interest cost recognized	$	13,278	$	12,802

The effective interest rate on the liability component was 6.85% for each of the three months ended April 1, 2012 and April 3, 2011. The remaining unamortized interest discount of $238.2 million as of April 1, 2012 will be amortized over the remaining life of the 1.5% Notes due 2017, which is approximately 5.4 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 April 1, 2012, the warrants had an expected life of approximately 5.7 years and will expire on 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 April 1, 2012, 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 April 1, 2012, the Company had not purchased any shares under this convertible bond hedge agreement.