Debt

Long-Term Debt

2.20% Notes Due 2021 and 3.20% Notes Due 2026

In fiscal year 2017, we issued $1.00 billion of the 2.20% Notes Due 2021, and $1.00 billion of the 3.20% Notes Due 2026, collectively, the Notes. Interest on the Notes is payable on March 16 and September 16 of each year, beginning on March 16, 2017. Upon 30 days' notice to holders of the Notes, we may redeem the Notes for cash prior to maturity, at redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the Notes Due 2021 on or after August 16, 2021, or for redemptions of the Notes Due 2026 on or after June 16, 2026. The net proceeds from the Notes were $1.98 billion, after deducting debt discount and issuance costs.

The Notes are our unsecured senior obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness. The Notes are structurally subordinated to the liabilities of our subsidiaries and are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness. All existing and future liabilities of our subsidiaries will be effectively senior to the Notes.

The carrying value of our long-term debt and the associated interest rates were as follows:



	Expected Remaining Term (years)	Effective Interest Rate	January 28, 2018			January 29, 2017
			(In millions)
2.20% Notes Due 2021	3.6	2.38%	$	1,000		$	1,000
3.20% Notes Due 2026	8.6	3.31%	1,000			1,000
Unamortized debt discount and issuance costs			(15		)	(17		)
Net carrying amount			$	1,985		$	1,983

Convertible Debt

1.00% Convertible Senior Notes Due 2018

In fiscal year 2014, we issued $1.50 billion of 1.00% Convertible Senior Notes due 2018. Through January 28, 2018, we had settled an aggregate of $1.48 billion of the Convertible Notes. The Convertible Notes are unsecured, unsubordinated obligations of the Company paying interest in cash semi-annually at a rate of 1.00% per annum and will mature on December 1, 2018 unless previously repurchased or converted. Upon conversion, we pay cash up to the aggregate principal amount and pay or deliver cash, shares of our common stock or a combination thereof, at our election, of our conversion obligation in excess of the aggregate principal amount being converted.

Holders may convert all or any portion of their Convertible Notes at any time prior to August 1, 2018 under certain circumstances. For example, during any fiscal quarter, if the last reported sale price of the common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day, the Convertible Notes become convertible at the holders' option. As this condition has been met, all outstanding Convertible Notes are convertible at the holders’ option through April 29, 2018.

During fiscal year 2018, we paid cash to settle $812 million in principal amount of the Convertible Notes and had $15 million in principal amount outstanding as of January 28, 2018. We also issued 33 million shares of our common stock for the excess conversion value and recognized a loss of $19 million on early conversions of the Convertible Notes. Based on the closing price of our common stock of $243.33 on the last trading day of fiscal year 2018, the if-converted value of the remaining outstanding Convertible Notes exceeded their principal amount by approximately $174 million. As of January 28, 2018, the conversion rate was 49.9127 shares of common stock per $1,000 principal amount of the Convertible Notes (equivalent to an adjusted conversion price of $20.0350 per share of common stock).

We separately accounted for the liability and equity components of the Convertible Notes as our conversion obligation in excess of the aggregate principal could be fully or partially settled in cash. The liability component was assigned by estimating the fair value of a similar debt without the conversion feature. The difference between the net cash proceeds and the liability component was assigned as the equity component. The initial liability component of the Convertible Notes was valued at $1.35 billion and the initial carrying value of the equity component recorded in additional paid-in-capital was valued at $126 million. This equity component, together with the $23 million purchaser's discount to the par value of the Convertible Notes, represented the initial aggregate unamortized debt discount of $148 million. The debt discount is amortized as interest expense over the contractual term of the Convertible Notes using the effective interest method and an interest rate of 3.15%.

As of January 28, 2018, the carrying value of the Convertible Notes was classified as a current liability and the difference between the principal amount and the carrying value of the Convertible Notes was classified as convertible debt conversion obligation in the mezzanine equity section of our Consolidated Balance Sheet. The convertible debt conversion obligation as of January 28, 2018 was not significant.

The following table presents the carrying value of the Convertible Notes:



	January 28, 2018		January 29, 2017
	(In millions)
1.00% Convertible Senior Notes	$	15	$	827
Unamortized debt discount (1)	—		(31		)
Net carrying amount	$	15	$	796

(1) As of January 28, 2018, the balance of unamortized debt discount was not significant and will be fully amortized in fiscal year 2019.

The following table presents interest expense for the contractual interest and the accretion of debt discount and issuance costs related to the Convertible Notes:



	Year Ended
	January 28, 2018		January 29, 2017		January 31, 2016
	(In millions)
Contractual coupon interest expense	$	—	$	9	$	15
Amortization of debt discount	2		24		29
Total interest expense related to Convertible Notes	$	2	$	33	$	44

Note Hedges and Warrants

Concurrently with the issuance of the Convertible Notes, we entered into a convertible note hedge transaction, or the Note Hedges. The Note Hedges have an adjusted strike price of $20.0350 per share and allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would deliver and/or pay, respectively, to the holders of the Convertible Notes upon conversion. Through January 28, 2018, we had received 56 million shares of our common stock from the exercise of a portion of the Note Hedges related to the settlement of $1.48 billion in principal amount of the Convertible Notes.

In addition, concurrent with the offering of the Convertible Notes and the purchase of the Note Hedges, we entered into a separate warrant transaction, or the Warrants. In fiscal year 2017, we entered into an agreement to terminate 63 million warrants and delivered a total of 48 million shares of common stock. In fiscal year 2018, we entered into a second agreement to terminate the remaining 12 million warrants outstanding and delivered a total of 10 million shares of common stock. Therefore, no warrants were outstanding as of January 28, 2018.

Revolving Credit Facility

In fiscal year 2017, we entered into a credit agreement, or the Credit Agreement, under which we may borrow, repay and re-borrow amounts from time to time, up to $575 million, for working capital and other general corporate purposes. The commitments under the Credit Agreement are available for a 5-year period ending on October 7, 2021. The Credit Agreement also permits us to obtain additional revolving loan commitments up to $425 million, subject to certain conditions. As of January 28, 2018, we had not borrowed any amounts and were in compliance with all related covenants under the Credit Agreement.

Commercial Paper

In December 2017, we established a commercial paper program to support general corporate purposes. Under the program, we can issue up to $575 million in commercial paper. As of January 28, 2018, there was no commercial paper outstanding.