Financing Arrangements

The following table reflects the carrying values of the Company’s convertible debt:



	September 27, 2015			December 28, 2014
	(In thousands)
1.5% Notes due 2017	$	996,715		$	996,788
Less: Unamortized bond discount	(93,200		)	(127,143		)
Net carrying amount of 1.5% Notes due 2017	903,515			869,645

0.5% Notes due 2020	1,500,000			1,500,000
Less: Unamortized bond discount	(265,778		)	(300,304		)
Net carrying amount of 0.5% Notes due 2020	1,234,222			1,199,696
Total convertible debt	2,137,737			2,069,341
Less: Convertible short-term debt	—			(869,645		)
Convertible long-term debt	$	2,137,737		$	1,199,696

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 (“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 19.1 million shares at an initial conversion price of approximately $52.37 per share). The 1.5% Notes due 2017 contain provisions where the conversion rate and conversion price are adjusted if the Company pays a cash dividend or makes a distribution to all or substantially all holders of its common stock. Accordingly, as of September 27, 2015, the conversion rate was adjusted for dividends paid to date to 19.7302 shares of common stock per $1,000 principal amount of notes (which represents 19.7 million shares at a conversion price of approximately $50.68 per share). The 1.5% Notes due 2017 may be converted at the option of the holders during certain periods as a result of, among other things, fluctuations in the Company’s stock price or in connection with a merger event. Under certain circumstances, the conversion rate will be increased for holders who elect to convert their 1.5% Notes due 2017 in connection with a merger event. 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. As of the date of issuance, the carrying value of the equity component was $294.0 million.

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 bond discount on the liability component of the 1.5% Notes due 2017:



	Three months ended				Nine months ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
	(In thousands)
Contractual interest coupon	$	3,738	$	3,750	$	11,214	$	11,250
Amortization of bond issuance costs	665		667		1,994		2,000
Amortization of bond discount	11,270		10,558		33,348		31,248
Total interest cost recognized	$	15,673	$	14,975	$	46,556	$	44,498

The effective interest rate on the liability component of the 1.5% Notes due 2017 was 6.85% for each of the three and nine months ended September 27, 2015 and September 28, 2014. The remaining unamortized bond discount of $93.2 million as of September 27, 2015 will be amortized over the remaining life of the 1.5% Notes due 2017, which is approximately 1.9 years.

Convertibility of the 1.5% Notes due 2017 based on the Company’s common stock price is triggered when the stock price exceeds 130% of the conversion price for more than 20 days in the period of 30 consecutive trading days prior to the calendar quarter end, as set forth in the indenture. When the 1.5% Notes due 2017 are convertible, the carrying value is classified as a current liability and the difference between the principal amount payable in cash upon conversion and the carrying value of the equity component of the 1.5% Notes due 2017 is reclassified from Stockholders’ equity to Convertible short-term debt conversion obligation on the Condensed Consolidated Balance Sheet. The determination of whether or not the 1.5% Notes due 2017 are convertible based upon the Company’s stock price is performed on a calendar-quarter basis. The 1.5% Notes due 2017 were convertible during the calendar quarter ended December 31, 2014, and accordingly, the carrying value of the notes was reported as short-term debt as of December 28, 2014. Based upon the Company’s stock price, the 1.5% Notes due 2017 were not convertible during the calendar quarter ended September 30, 2015 and are not convertible during the calendar quarter ending December 31, 2015, and accordingly, the carrying value of the notes was reported as long-term debt as of September 27, 2015.

Based on the last closing price for the Company’s common stock as of September 27, 2015 of $50.86, if all of the 1.5% Notes due 2017 then outstanding were converted at the then-current conversion rate, approximately 68 thousand shares would be distributed to the holders.

During the three and nine months ended September 27, 2015, $5 thousand and $73 thousand, respectively, aggregate principal amount of the 1.5% Notes due 2017 (“Converted Notes”) was converted at the holders’ option. During the three and nine months ended September 27, 2015, with respect to the Converted Notes, the Company delivered cash of $5 thousand and $73 thousand, respectively, for the principal amount, and 10 shares and 515 shares, respectively, of the Company’s common stock with respect to conversion value greater than the principal amount. The Company recorded an immaterial loss during the three and nine months ended September 27, 2015 related to the partial extinguishment of the Converted Notes.

The Company pays cash interest at an annual rate of 1.5%, payable semi-annually on February 15 and August 15 of each year, beginning February 15, 2011. Debt issuance costs were $18.7 million, of which $5.5 million was allocated to capital in excess of par value and $13.2 million was allocated to deferred issuance costs and is amortized to interest expense over the term of the 1.5% Notes due 2017. As of September 27, 2015, unamortized deferred issuance cost was $3.5 million.

Concurrently with the issuance of the 1.5% Notes due 2017, the Company purchased a convertible bond hedge in which counterparties initially 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. The convertible bond hedge agreement contains provisions where the number of shares to be sold under the convertible bond hedge transaction and the conversion price will be adjusted if the Company pays a cash dividend or makes a distribution to all or substantially all holders of its common stock. Adjusting for dividends paid through September 27, 2015, the counterparties agreed to sell to the Company up to approximately 19.7 million shares of the Company’s common stock, which is the number of shares issuable upon conversion of the 1.5% Notes due 2017 in full, at a price of $50.68 per share as of September 27, 2015. This convertible bond hedge transaction will terminate upon the earlier of the maturity date of the 1.5% Notes due 2017 or the first day none of the 1.5% Notes due 2017 remain outstanding due to conversion or otherwise. Settlement of the convertible bond hedge in net shares, based on the number of shares issuable upon conversion of the 1.5% Notes due 2017, on the maturity 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. Cumulatively through September 27, 2015, the Company had received 27,134 shares of the Company’s common stock from the exercise of a portion of the convertible bond hedge related to the conversion of $3.3 million aggregate principal amount of the 1.5% Notes due 2017.

In addition, concurrent with the issuance of the 1.5% Notes due 2017, the Company sold warrants to purchase up to approximately 19.1 million shares of the Company’s common stock at an exercise price of $73.3250 per share. The warrant agreement contains provisions whereby the number of shares to be acquired under the warrants and the strike price are adjusted if the Company pays a cash dividend or makes a distribution to all or substantially all holders of its common stock. Adjusting for dividends paid through September 27, 2015, holders of the warrants may acquire up to approximately 19.7 million shares of the Company’s common stock at a strike price of $70.9573 per share as of September 27, 2015. The warrants mature on 40 different dates from November 13, 2017 through January 10, 2018 and are exercisable at the maturity date. At each maturity date, the Company may, at its option, elect to settle the warrants on a net share basis. As of September 27, 2015, the warrants had not been exercised and remained outstanding. The value of the warrants was initially recorded in equity and continues to be classified as equity.

0.5% Convertible Senior Notes Due 2020. In October 2013, the Company issued and sold $1.5 billion in aggregate principal amount of 0.5% Convertible Senior Notes due October 15, 2020 (the “0.5% Notes due 2020”) at par. The 0.5% Notes due 2020 may be converted, under certain circumstances, based on an initial conversion rate of 10.8470 shares of common stock per $1,000 principal amount of notes (which represents 16.3 million shares at an initial conversion price of approximately $92.19 per share). The 0.5% Notes due 2020 contain provisions where the conversion rate and conversion price are adjusted if the Company pays a cash dividend greater than a regular quarterly cash dividend of $0.225 per share or makes a distribution to all or substantially all holders of its common stock. Accordingly, as of September 27, 2015, the conversion rate was adjusted for dividends in excess of $0.225 per share paid to date to 10.9006 shares of common stock per $1,000 principal amount of notes (which represents 16.4 million shares at a conversion price of approximately $91.74 per share). The 0.5% Notes due 2020 may be converted at the option of the holders during certain periods as a result of, among other things, fluctuations in the Company’s stock price or in connection with a merger event. Under certain circumstances, the conversion rate will be increased for holders who elect to convert their 0.5% Notes due 2020 in connection with a merger event. The net proceeds to the Company from the sale of the 0.5% Notes due 2020 were approximately $1.48 billion.

The Company separately accounts for the liability and equity components of the 0.5% Notes due 2020. The principal amount of the liability component of $1.15 billion as of the date of issuance was recognized at the present value of its cash flows using a discount rate of 4.43%, the Company’s borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. As of September 27, 2015, the carrying value of the equity component of $352.0 million was unchanged from the date of issuance.



	Three months ended				Nine months ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
	(In thousands)
Contractual interest coupon	$	1,875	$	1,875	$	5,625	$	5,625
Amortization of bond issuance costs	627		627		1,882		1,924
Amortization of bond discount	11,433		10,936		34,085		32,334
Total interest cost recognized	$	13,935	$	13,438	$	41,592	$	39,883

The effective interest rate on the liability component of the 0.5% Notes due 2020 was 4.43% for each of the three and nine months ended September 27, 2015 and September 28, 2014. The remaining unamortized bond discount of $265.8 million as of September 27, 2015 will be amortized over the remaining life of the 0.5% Notes due 2020, which is approximately 5.1 years. As of September 27, 2015, the 0.5% Notes due 2020 were not convertible.

The Company pays cash interest at an annual rate of 0.5%, payable semi-annually on April 15 and October 15 of each year, beginning April 15, 2014. Debt issuance costs were $17.6 million, of which $4.1 million was allocated to capital in excess of par value and $13.5 million was allocated to deferred issuance costs and is amortized to interest expense over the term of the 0.5% Notes due 2020. As of September 27, 2015, unamortized deferred issuance cost was $9.8 million.

Concurrently with the issuance of the 0.5% Notes due 2020, the Company purchased a convertible bond hedge in which counterparties agreed to sell to the Company up to approximately 16.3 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the 0.5% Notes due 2020 in full, at a price of $92.19 per share. The convertible bond hedge agreement contains provisions where the number of shares to be sold under the convertible bond hedge transaction and the conversion price will be adjusted if the Company pays a cash dividend greater than a regular quarterly cash dividend of $0.225 per share or makes a distribution to all or substantially all holders of its common stock. Adjusting for dividends paid through September 27, 2015, the counterparties agreed to sell to the Company up to approximately 16.4 million shares of the Company’s common stock, which is the number of shares issuable upon conversion of the 0.5% Notes due 2020 in full, at a price of $91.74 per share as of September 27, 2015. This convertible bond hedge transaction will terminate upon the earlier of the maturity date of the 0.5% Notes due 2020 or the first day none of the 0.5% Notes due 2020 remain outstanding due to conversion or otherwise. As of September 27, 2015, the Company had not purchased any shares under this convertible bond hedge agreement. Settlement of the convertible bond hedge in net shares, based on the number of shares issuable upon conversion of the 0.5% Notes due 2020, on the maturity date would result in the Company receiving net shares equivalent to the number of shares issuable by the Company upon conversion of the 0.5% Notes due 2020.

In addition, concurrent with the issuance of the 0.5% Notes due 2020, the Company sold warrants to purchase up to approximately 16.3 million shares of the Company’s common stock at an exercise price of $122.9220 per share. The warrant agreement contains provisions whereby the number of shares to be acquired under the warrants and the strike price are adjusted if the Company pays a cash dividend greater than a regular quarterly cash dividend of $0.225 per share or makes a distribution to all or substantially all holders of its common stock. Adjusting for dividends paid through September 27, 2015, holders of the warrants may acquire up to approximately 16.4 million shares of the Company’s common stock at a strike price of $122.3181 per share as of September 27, 2015. The warrants mature on 40 different dates from January 13, 2021 through March 11, 2021 and are exercisable at the maturity date. At each maturity date, the Company may, at its option, elect to settle the warrants on a net share basis. As of September 27, 2015, the warrants had not been exercised and remained outstanding. The value of the warrants was initially recorded in equity and continues to be classified as equity.