(12) FINANCING ARRANGEMENT

0.75% Convertible Senior Notes Due 2016

In July 2011, we issued $632.5 million aggregate principal amount of 0.75% Convertible Senior Notes due 2016 (the “Convertible Notes”). The Convertible Notes are senior unsecured obligations which pay interest semiannually in arrears at a rate of 0.75% per annum on January 15 and July 15 of each year, and will mature on July 15, 2016, unless purchased earlier or converted in accordance with their terms prior to such date. The Convertible Notes are senior unsecured obligations and rank equally with all our other existing and future unsubordinated obligations and any indebtedness that we may incur from time to time under our Credit Facility.

We separately account for the liability and equity components of the Convertible Notes. The initial carrying amount of the equity component representing the conversion option is equal to the fair value of the Convertible Note Hedge, as described below, which is a substantially identical instrument and was purchased on the same day as the Convertible Notes. The initial carrying amount of the liability component was determined by deducting the fair value of the equity component from the par value of the Convertible Notes as a whole, and represents the fair value of a similar liability that does not have an associated convertible feature. A liability of $525 million as of the initial date of issuance was recognized for the principal amount of the Convertible Notes representing the present value of the Convertible Notes’ cash flows using a discount rate of 4.54 percent. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the term of the Convertible Notes using the effective interest method. The equity component on the date of issuance was $107 million.

In accounting for $15 million of issuance costs paid in July 2011 related to the Convertible Notes issuance, we allocated $13 million to the liability component and $2 million to the equity component. Debt issuance costs attributable to the liability component are being amortized to interest expense over the term of the Convertible Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.

The Convertible Notes are convertible into cash and shares of our common stock based on an initial conversion value of 31.5075 shares of our common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $31.74 per share). Upon conversion of the Convertible Notes, holders will receive cash up to the principal amount of each Convertible Note, and any excess conversion value will be delivered in shares of our common stock. A holder may convert any of its Convertible Notes at any time prior to the close of business on July 13, 2016. The conversion rate is subject to customary anti-dilution adjustments (for example, certain dividend distributions or tender or exchange offer of our common stock), but will not be adjusted for any accrued and unpaid interest. The Convertible Notes are not redeemable prior to maturity except for specified corporate transactions and events of default, and no sinking fund is provided for the Convertible Notes. The Convertible Notes do not contain any financial covenants.

The carrying value of the Convertible Notes continued to be classified as a current liability and the excess of the principal amount over the carrying value of the Convertible Notes continued to be classified in temporary equity in the Consolidated Balance Sheets as of March 31, 2016.

Upon conversion of any Convertible Notes, we deliver cash up to the principal amount of the Convertible Notes and any excess conversion value is delivered in shares of our common stock. During fiscal year 2016, approximately $497 million principal value of the Convertible Notes were converted by holders thereof. During fiscal year 2016, we repaid $470 million principal balance of the Convertible Notes and issued approximately 7.8 million shares of common stock to noteholders with a fair value of $518 million, resulting in a loss on extinguishment of $10 million. We also received and cancelled approximately 7.8 million shares of common stock from the exercise of the Convertible Note Hedge during fiscal year 2016. Based on the closing price of our common stock of $65.92 at the end of the fiscal year ended March 31, 2016, the if-converted value of our Convertible Notes outstanding in aggregate exceeded their principal amount by $175 million.

Subsequent to the fiscal year ended March 31, 2016 and through May 23, 2016, we received conversion requests for an immaterial principal value of the Convertible Notes. During the quarter ending June 30, 2016, we expect to settle conversion requests with $27 million in cash and a number of shares of our common stock equal in value to the excess conversion value. Based on the closing price of our common stock of $65.92 at the end of the fiscal year ended March 31, 2016, approximately 0.4 million shares of our common stock would be issuable to converting holders. The actual amount of shares issuable upon conversion will be determined based upon the market price of our common stock during an observation period following any conversion.

The carrying and fair values of the Convertible Notes are as follows (in millions):



	As of March 31, 2016			As of March 31, 2015
Principal amount of Convertible Notes	$	163		$	633
Unamortized debt discount of the liability component	(2		)	(31		)
Net carrying value of Convertible Notes	$	161		$	602

Fair value of Convertible Notes (Level 2)	$	338		$	1,158

As of March 31, 2016, the remaining life of the Convertible Notes is approximately 3.5 months.

Convertible Note Hedge and Warrants Issuance

In July 2011, we entered into the Convertible Note Hedge to reduce the potential dilution with respect to our common stock upon conversion of the Convertible Notes. We paid $107 million for the Convertible Note Hedge, which was recorded as an equity transaction. The Convertible Note Hedge, subject to customary anti-dilution adjustments, provides us with the option to acquire, on a net settlement basis, approximately 19.9 million shares of our common stock equal to the number of shares of our common stock that notionally underlie the Convertible Notes at a strike price of $31.74, which corresponds to the conversion price of the Convertible Notes. As of March 31, 2016, we received 7.8 million shares of our common stock under the Convertible Note Hedge. Subsequent to March 31, 2016, we expect to receive a number of shares under the Convertible Note Hedge substantially equal to the number of shares of common stock to be issued in connection with any conversions of the Convertible Notes.

Separately, in July 2011 we also entered into privately negotiated warrant transactions with certain counterparties whereby we sold to independent third parties warrants (the “Warrants”) to acquire, subject to customary anti-dilution adjustments that are substantially the same as the anti-dilution provisions contained in the Convertible Notes, up to 19.9 million shares of our common stock (which is also equal to the number of shares of our common stock that notionally underlie the Convertible Notes), with a strike price of $41.14. The Warrants have a dilutive effect with respect to our common stock to the extent that the market price per share of our common stock exceeds $41.14 on or prior to the expiration date of the Warrants. The Warrants automatically exercise over a 60 trading day period beginning on October 17, 2016. Based on the closing price of our common stock of $65.92 at the end of the fiscal year ended March 31, 2016, approximately 7.5 million shares of our common stock would be issuable to Warrant holders. The actual amount of shares issuable upon exercise will be determined based upon the market price of our common stock during the 60 day trading period beginning on October 17, 2016. We received proceeds of $65 million from the sale of the Warrants in fiscal year 2012.

Effect of conversion on earning per share (“EPS”)

The Convertible Notes have no impact on diluted EPS for periods where the average quarterly price of our common stock is below the conversion price of $31.74 per share. Prior to conversion, we include the effect of the additional shares that may be issued if our common stock price exceeds $31.74 per share using the treasury stock method. If the average price of our common stock exceeds $41.14 per share for a quarterly period, we also include the effect of the additional potential shares that may be issued related to the Warrants using the treasury stock method. Prior to conversion, the Convertible Note Hedge is not considered for purposes of the EPS calculation, as its effect would be anti-dilutive. Upon conversion, the Convertible Note Hedge is expected to offset the dilutive effect of the Notes when the stock price is above $31.74 per share. See Note 17 for additional information related to our EPS.

Senior Notes

In February 2016, we issued $600 million aggregate principal amount of 3.70% Senior Notes due March 1, 2021 (the “2021 Notes”) and $400 million aggregate principal amount of 4.80% Senior Notes due March 1, 2026 (the “2026 Notes,” and together with the 2021 Notes, the “Senior Notes”). Our proceeds were $989 million, net of discount of $2 million and issuance costs of $9 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 2021 Notes and the 2026 Notes using the effective interest rate method. The effective interest rate was 3.94% for the 2021 Notes and 4.97% for the 2026 Notes. Interest is payable semiannually in arrears, on March 1 and September 1 of each year, beginning on September 1, 2016.

The carrying and fair values of the Senior Notes are as follows (in millions):



	As of March 31, 2016
Senior Notes:
3.70% Senior Notes due 2021	$	600
4.80% Senior Notes due 2026	400
Total principal amount	$	1,000
Unaccreted discount	(2		)
Unamortized debt issuance costs	(9		)
Net carrying value of Senior Notes	$	989

Fair value of Senior Notes (Level 2)	$	1,039

As of March 31, 2016, the remaining life of the 2021 Notes and 2026 Notes is approximately 4.9 years and 9.9 years, respectively.

The Senior Notes are senior unsecured obligations and rank equally with all our other existing and future unsubordinated obligations, including our Convertible Notes, and any indebtedness that we may incur from time to time under our Credit Facility.

The 2021 Notes and the 2026 Notes are redeemable at our option at any time prior to February 1, 2021 or December 1, 2025, respectively, subject to a make-whole premium. Within one and three months of maturity, we may redeem the 2021 Notes or the 2026 Notes, respectively, at a redemption price equal to 100% of the aggregate principal amount plus accrued and unpaid interest. In addition, upon the occurrence of a change of control repurchase event, the holders of the Senior Notes may require us to repurchase all or a portion of the Senior Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The Senior Notes also include covenants that limit our ability to incur liens on assets and to enter into sale and leaseback transactions, subject to certain allowances.

Credit Facility

In March 2015, we entered into a $500 million senior unsecured revolving credit facility (“Credit Facility”) with a syndicate of banks. The Credit Facility terminates on March 19, 2020. The Credit Facility contains an option to arrange with existing lenders and/or new lenders for them to provide up to an aggregate of $250 million in additional commitments for revolving loans. Proceeds of loans made under the Credit Facility may be used for general corporate purposes.

The loans bear interest, at our option, at the base rate plus an applicable spread or an adjusted LIBOR rate plus an applicable spread, in each case with such spread being determined based on our consolidated leverage ratio for the preceding fiscal quarter. We are also obligated to pay other customary fees for a credit facility of this size and type. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted LIBOR rate. Principal, together with all accrued and unpaid interest, is due and payable on March 19, 2020.

The credit agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur subsidiary indebtedness, grant liens, dispose of all or substantially all assets and pay dividends or make distributions, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a capitalization ratio and maintain a minimum level of total liquidity.

The credit agreement contains customary events of default, including among others, non-payment defaults, covenant defaults, cross-defaults to material indebtedness, bankruptcy and insolvency defaults, material judgment of defaults and a change of control default, in each case, subject to customary exceptions for a credit facility of this size and type. The occurrence of an event of default could result in the acceleration of the obligations under the credit facility, an obligation by any guarantors to repay the obligations in full and an increase in the applicable interest rate.

As of March 31, 2016 and 2015, no amounts were outstanding under the Credit Facility. $2 million of debt issuance costs that were paid in connection with obtaining this credit facility are being amortized to interest expense over the 5 year term of the Credit Facility.

Interest Expense

The following table summarizes our interest expense recognized for fiscal years 2016, 2015, and 2014 that is included in interest and other income (expense), net on our Consolidated Statements of Operations (in millions):



	Year Ended March 31,
	2016			2015			2014
Amortization of debt discount	(17		)	(22		)	(21		)
Amortization of debt issuance costs	(3		)	(3		)	(3		)
Coupon interest expense	(7		)	(5		)	(5		)
Other interest expense	(1		)	(1		)	(1		)
Total interest expense	$	(28	)	$	(31	)	$	(30	)