DEBT

Total debt is comprised of the following:



	As of
	April 2, 2017		January 1, 2017
	(In thousands)
Current portion of long-term debt
Term Loan A	$	7,500	$	7,500
Term Loan B	22,500		22,500
Equipment loans and capital lease obligations	36		152
Current portion of long-term debt	30,036		30,152
Revolving credit facility and long-term debt
Revolving Credit facility	317,000		332,000
Term Loan A	82,940		84,838
Term Loan B	396,405		406,214
2.00% Senior Exchangeable Notes	136,314		135,401
4.50% Senior Exchangeable Notes	239,047		236,526
Revolving credit facility and long-term debt	1,171,706		1,194,979
Total debt	$	1,201,742	$	1,225,131

4.50% Senior Exchangeable Notes

On June 23, 2016, the Company, issued at face value, $287.5 million of Senior Exchangeable Notes due in 2022 (the “Notes”) in a private placement to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended. The Notes are governed by an Indenture (“Indenture”), dated June 23, 2016, between the Company and U.S. Bank National Association, as Trustee. The Notes will mature on January 15, 2022, unless earlier repurchased or converted, and bear interest of 4.50% per year payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2017. The Notes may be due and payable immediately in certain events of default.

The Notes are exchangeable for an initial exchange rate of 74.1372 shares of common stock per $1,000 principal amount of the Notes (equivalent to an initial exchange price of approximately $13.49 per share) subject to adjustments for anti-dilutive issuances and make-whole adjustments upon a fundamental change. Refer to Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended January 1, 2017 for further details.

Upon conversion, the Company may pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a pre-defined calculation of the conversion value.

It is the Company’s intent that upon conversion, the Company would pay the holders of the Notes cash for an amount up to the aggregate principal amount of the Notes. If the conversion value exceeds the principal amount, the Company intends to deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (“conversion spread”). Accordingly, for the purposes of calculating diluted earnings per share, there would be no adjustment to the numerator in the net income per common share computation for the cash settled portion of the Notes, as that portion of the debt liability is expected to be settled in cash. The conversion spread will be included in the denominator for the computation of diluted net income per common share using the treasury stock method.

The following table includes total interest expense related to the Notes recognized during the three months ended April 2, 2017 and year ended January 1, 2017 (in thousands):



	Three months ended April 2, 2017		Year ended January 1, 2017
Contractual interest expense	$	3,270	$	6,900
Amortization of debt issuance costs	319		700
Accretion of debt discount	2,202		4,646
Total	$	5,791	$	12,246

The net liability component of the Notes as of April 2, 2017 is comprised of the following (in thousands):



	April 2, 2017
Net carrying amount at issuance date	$	231,180
Amortization of debt issuance costs during the year	1,019
Accretion of debt discount during the year	6,848
	$	239,047

Capped Calls

In connection with the issuance of the Notes, the Company entered into capped call transactions with certain bank counterparties to reduce the risk of potential dilution of the Company’s common stock upon the exchange of the Notes. The capped call transactions have a strike price of approximately $13.49 and a cap price of approximately $15.27, and are exercisable when and if the Notes are converted. If upon conversion of the Notes, the price of the Company’s common stock is above the strike price of the capped calls, the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value approximately equal to the difference between the price of the Company’s common stock at the conversion date (as defined, with a maximum price for purposes of this calculation equal to the cap price) and the strike price, multiplied by the number of shares of the Company’s common stock related to the capped call transactions being exercised. The capped calls expire in January 2022.

Senior Secured Revolving Credit Facility ("Revolving Credit Facility")

On February 17, 2017, the Company amended its Senior Secured Credit Facility. The amendment reduced the applicable margins on the Term Loan B and Term Loan A from 5.50% and 5.11% respectively, to 3.75% effective February 17, 2017. Additionally, the amended financial covenants include the following conditions: 1) maximum senior secured leverage ratio of 4.25 to 1.00 through December 31, 2017, 2) maximum senior secured leverage ratio of 4.00 to 1.00 through July 1, 2018 and 3.75 to 1.00 thereafter. The Company incurred financing costs of $5.9 million to lenders of the Term Loans which has been capitalized and recognized as a reduction of the Term Loan A and Term Loan B balance in “Long-term revolving credit facility and long term debt” on the Condensed Consolidated Balance Sheet. These costs will be amortized over the life of the Term Loans and recorded in “Interest Expense” on the Condensed Consolidated Statements of Operations.

As of April 2, 2017, $849.4 million aggregate principal amount of loans, including Term Loan A, Term Loan B and letters of credit, were outstanding under the Revolving Credit Facility.

As of April 2, 2017, the Company was in compliance with all of the financial covenants under the Credit Facility.

2.00% Senior Exchangeable Notes

Pursuant to the Merger, Cypress assumed Spansion's 2.00% Senior Exchangeable Notes (the “Spansion Notes”) on March 12, 2015. They are fully and unconditionally guaranteed on a senior unsecured basis by the Company. The Spansion Notes will mature on September 1, 2020, unless earlier repurchased or converted, and bear interest of 2.00% per year payable semi-annually in arrears on March 1 and September 1. The Spansion Notes may be due and payable immediately in certain events of default.

As of April 2, 2017, the Spansion Notes are exchangeable for 193.6 shares of common stock per $1,000 principal amount of the Notes (equivalent to an exchange price of approximately $5.16) subject to adjustments for dividends, anti-dilutive issuances and make-whole adjustments upon a fundamental change. Refer to Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended January 1, 2017 for further details.

Upon conversion, the Company may pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. If the Company satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of our common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a pre-defined conversion value.

It is the Company’s intent that upon conversion, the Company will pay to the holders of the Spansion Notes cash for an amount up to the aggregate principal amount of the Spansion Notes. If the conversion value exceeds the principal amount, the Company intends to deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (“conversion spread”). Accordingly, for the purposes of calculation of diluted earnings per share, there would be no adjustment to the numerator in the net income per common share computation for the cash settled portion of the Spansion Notes, as that portion of the debt liability is expected to be settled in cash. The conversion spread, will be included in the denominator for the computation of diluted net income per common share, using the treasury stock method.

The net carrying amount of the liability component of the Spansion Notes as of April 2, 2017 consists of the following:



	(in thousands)
Principal amount	$	149,990
Unamortized debt discount	(13,676		)
Net carrying value	$	136,314

The following table presents the interest on the Spansion Notes recognized as an expense during the three months ended April 2, 2017 and April 3, 2016:



	Three Months Ended
	April 2, 2017		April 3, 2016
	(in thousands)
2.00% Senior Exchangeable Notes
Contractual interest expense at 2% per annum	$	750	$	747
Accretion of debt discount	913		872
Total	$	1,663	$	1,619

Capital Leases and Equipment Loans

In 2011, the Company entered into capital lease agreements which allow it to borrow up to $35.0 million to finance the acquisition of certain manufacturing equipment. Assets purchased under all capital leases are included in “Property, plant and equipment, net” on the Company's Consolidated Balance Sheet.

As of January 1, 2017, the gross value and net book value of manufacturing equipment purchased under these capital leases were $1.8 million and $0.9 million, respectively. As of April 2, 2017, the gross value and net book value of manufacturing equipment purchased under these capital leases were $1.8 million and $0.8 million, respectively. As at end of first quarter of fiscal 2017, there is no balance outstanding against these capital leases.

In December 2011, the Company obtained equipment loans from a financial institution for an aggregate amount of approximately $14.1 million which are collateralized by certain manufacturing equipment and bear interest of 3.15% to 3.18% per annum payable in 60 equal installments. During the first quarter of fiscal 2017, substantially all of the equipment loans have been paid off.

Future Debt Payments

For each of the next five years and beyond, the scheduled maturities of the Company's debts including interest as of April 2, 2017, is as follows:



Fiscal Year	Term Loan A		Term Loan B		Revolving Credit Facility		2.00% Senior Exchangeable Notes		4.50% Senior Exchangeable Notes		Equipment loans		Total
	(In thousands)
2017 (remaining nine months)	$	9,082	$	37,315	$	10,271	$	1,500	$	13,908	$	36	$	72,112
2018	10,676		41,871		10,271		3,000		13,117		—		78,935
2019	12,859		43,604		10,271		3,000		13,117		—		82,851
2020	72,625		50,606		319,568		152,989		13,153		—		608,941
2021 and after	—		347,982		—		—		307,230		—		655,212
Total	$	105,242	$	521,378	$	350,381	$	160,489	$	360,525	$	36	$	1,498,051