Debt

3 Months Ended

Apr. 01, 2023

Debt

Debt

6. Debt

0.625% Convertible Senior Notes

On June 1, 2020, the Company completed a private placement of $535 million principal amount convertible senior notes (the “2025 Notes”). The 2025 Notes bear interest semi-annually at a rate of 0.625% per year and were scheduled to mature on June 15, 2025.

On March 22, 2023, the Company issued a notice of redemption for the 2025 Notes. The redemption will occur on June 20, 2023 for any of the 2025 Notes outstanding that have not been previously converted. Prior to the consummation of the redemption, the noteholders are entitled to convert their notes into shares of our common stock at a rate of 8.1980 shares per $1,000 principal amount of the 2025 Notes, which is equivalent to a conversion price of $121.98 per share. Such conversion right will expire on June 16, 2023. Noteholders that convert their 2025 Notes will also receive an additional 0.4101 shares per $1,000 principal amount of 2025 Notes. The Company irrevocably elected cash settlement for the principal amount of the 2025 Notes and intends to settle any excess value with a combination of shares of the Company’s common stock and cash for fractional shares, if any. The excess value will be determined pursuant to the settlement upon conversion procedure as described in the 2025 Notes indenture. The 2025 Notes were classified as current liabilities at April 1, 2023 due to the pending redemption.

The carrying amount of the 2025 Notes consisted of the following (in thousands):

	April 1,		December 31,
	2023		2022
Principal	$	534,980	$	534,980
Unamortized debt issuance costs		(4,884)		(5,407)
Net carrying amount	$	530,096	$	529,573

6. Debt (Continued)

The 2025 Notes are recorded in convertible debt, net on the Condensed Consolidated Balance Sheet. The effective interest rate for the liability component was 5.336%. The remaining balance of the debt issuance costs will be recognized in stockholders’ equity for 2025 Notes that are converted or as debt extinguishment loss for 2025 Notes that are redeemed prior to conversion in the second quarter of fiscal 2023. Interest expense related to the 2025 Notes was comprised of the following (in thousands):

	Three Months Ended
	April 1,		April 2,
	2023		2022
Contractual interest expense	$	845	$	845
Amortization of debt issuance costs		523		496
	$	1,368	$	1,341

Credit Facility

The Company and certain of its domestic subsidiaries (the “Guarantors”) have a $400 million revolving credit facility with a maturity date of August 7, 2024. The credit facility includes a $25 million letter of credit sublimit and a $10 million swingline loan sublimit. The Company also has an option to increase the size of the borrowing capacity by up to the greater of an aggregate of $250 million and 100% of EBITDA of the last four fiscal quarters, plus an amount that would not cause a secured leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.25 to 1.00, subject to certain conditions.

The credit facility, other than swingline loans, will bear interest at the Eurodollar rate plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Wells Fargo prime rate, the Federal Funds rate plus 0.50% and the Eurodollar Base Rate plus 1.00%) plus an applicable margin. Swingline loans accrue interest at the base rate plus the applicable margin for base rate loans. The applicable margins for the Eurodollar rate loans range from 1.00% to 1.75% and for base rate loans range from 0.00% to 0.75%, depending in each case, on the leverage ratio as defined in the credit facility.

The credit facility contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a net leverage ratio (funded indebtedness/EBITDA) of no more than 4.25 to 1, a secured leverage ratio of no more than 3.50 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. As of April 1, 2023, the Company was in compliance with all covenants of the credit facility. The Company’s obligations under the credit facility are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors. As of April 1, 2023, no amounts were outstanding on the credit facility.