	As of
	April 1, 2011			April 2, 2010
2004 Notes			-			20
2008 Notes			195,643			187,101
Capital lease obligations			780			1,701
Total debt			196,423			188,822
Less: Current portion of debt			761			881
Long-term debt		$	195,662		$	187,941

On March 15, 2009, holders of $149.98 million in principal face value of 2.25% senior convertible notes exercised the put option requiring the Company to purchase the notes at 100% of the principle amount plus accrued interest, resulting in a payment of approximately $151.7 million during the year ended March 27, 2009. To fund the repurchase, the Company used approximately $101.7 million in available cash on hand from the issuance of $230.0 million of 3.125% senior convertible notes and $50.0 million from its asset-based revolving line of credit.

As of April 1, 2011, the Company has a deferred income tax liability of $17,316 (tax effected) related to interest deductions taken for tax purposes on its 2004 Notes. The liability will be deferred and paid ratably from fiscal year 2014 to fiscal year 2018 in accordance with the American Recovery and Reinvestment Act of 2009 and is classified in Other Noncurrent Liabilities on the Consolidated Balance Sheets.

In August 2008, the Company issued $230.0 million principal amount of 3.125% senior convertible notes (“2008 Notes”), which mature on August 1, 2014. Interest on the notes is payable semiannually in arrears on February 1 and August 1 of each year. The notes will be convertible into cash up to the principal amount of the notes and shares of the Company's common stock for any conversion value in excess of the principal amount under the following circumstances: (i) if the Company has called the notes for redemption; (ii) in the event of a fundamental change, as defined in the indenture, such as a merger, acquisition, or liquidation; (iii) on or after May 1, 2014 and prior to the close of business on the second scheduled trading day immediately preceding August 1, 2014; (iv) prior to May 1, 2014, during the five consecutive business day period following any five consecutive trading day period in which the trading price for a note for each day of that trading period is less than 98% of the closing sale price of the Company's common stock on such corresponding trading day multiplied by the applicable conversion rate; (v) prior to May 1, 2014, during any calendar quarter after September 30, 2008 in which the closing sale price of the Company's common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than 130% of the applicable conversion price of $21.22 per share (“Contingent Conversion Trigger”); or (vi) upon certain specified corporate events as discussed in the indenture governing the notes.

A note holder may not exercise its conversion right with respect to all or any portion of a note, if such conversion would cause the note holder to become a beneficial owner of more than 9.9% of the Company's outstanding voting stock. The initial conversion rate is 47.1342 shares of common stock per each $1 (in thousands) principal amount of notes and is equivalent to an initial conversion price of $21.22 per share. The conversion rate is subject to adjustment upon the occurrence of certain events. If the notes were converted as of April 1, 2011, the if-converted value would exceed the principal amounts of the 2008 Notes by $64,546.

As of April 1, 2011 and April 2, 2010, the fair value of the 2008 Notes was approximately $323,800 and $285,800, respectively.

The ability of note holders to convert is assessed on a quarterly basis and is dependent on the trading price of the Company's stock during the last 30 trading days of each quarter. The Contingent Conversion Trigger was not met during the three months ended April 1, 2011; therefore, the notes may not be converted during the Company's first quarter of fiscal year 2011.

The Company used a portion of the net proceeds of the offering to repurchase approximately $35.0 million of its common stock in privately negotiated transactions with institutional investors concurrently with this offering. See Stock Repurchase Program in Footnote 14, Equity, for additional information. The Company used $101.7 million of the net proceeds during fiscal year 2009, when holders of the 2004 Notes required the Company to redeem approximately all of their outstanding notes plus accrued interest. Remaining proceeds were used for general corporate purposes.

In connection with the offering of the notes, the Company also entered into convertible note hedge transactions with respect to its common stock (the “purchased options”) with a major financial institution (the “counterparty”). The Company paid an aggregate amount of $54.1 million to the counterparty for the purchased options. The purchased options cover, subject to anti-dilution adjustments substantially identical to those in the notes, approximately 10.8 million shares of common stock at a strike price that corresponds to the initial conversion price of the notes, also subject to adjustment, and are exercisable at each conversion date of the notes. The purchased options will expire upon the earlier of (i) the last day the notes remain outstanding or (ii) the second scheduled trading day immediately preceding the maturity date of the notes.

The purchased options are intended to reduce the potential dilution upon conversion of the notes in the event that the market value per share of the common stock, as measured under the notes, at the time of exercise is greater than the conversion price of the notes. The options have been accounted for as an adjustment to the Company's equity, net of deferred tax assets of $21.0 million.

The purchased options are separate transactions, entered into by the Company with the counterparty, and are not part of the terms of the notes. Holders of the notes will not have any rights with respect to the purchased options.

The Company also entered into warrant transactions (the “warrants”), whereby the Company sold to the counterparty warrants in an aggregate amount of $25.4 million to acquire, subject to anti-dilution adjustments, up to 10.8 million shares of common stock at a strike price of $28.29 per share of common stock, also subject to adjustment. The warrants will expire after the purchased options in approximately ratable portions on a series of expiration dates commencing on November 3, 2014.

If the market value per share of the common stock, as measured under the warrants, exceeds the strike price of the warrants, the warrants will have a dilutive effect on the Company's earnings per share. The warrants have been accounted for as an adjustment to the Company's equity and recorded in Additional paid in capital on the Consolidated Balance Sheets.

The warrants are separate transactions, entered into by the Company with the counterparties, and are not part of the terms of the notes. Holders of the notes do not have any rights with respect to the warrants.

On March 28, 2009, the Company adopted ASC 470-20, Debt – Debt with Conversion and Other Options (“ASC 470-20”) which required retrospective restatement (See Footnote 2, Summary of Significant Accounting Policies). The following illustrates the impact of adopting the guidance on the Consolidated Statement of Operations for the fiscal year ended March 27, 2009:

		For the Fiscal Year
		2009
(in thousands, except per share amounts)		As Originally Reported		Effect of ASC 470-20		As Adjusted
Income from operations		$	101,145	$	(218)	$	100,927
Other expense			(6,897)		(10,314)		(17,211)
Income before provision for income taxes			94,248		(10,532)		83,716
Provision for income taxes			36,232		(4,002)		32,230
Net income			58,016		(6,530)		51,486
Net income attributable to PSS World Medical, Inc.		$	58,016	$	(6,530)	$	51,486
Earnings per common share attributable to PSS World Medical, Inc.:
	Basic	$	0.97	$	(0.11)	$	0.86
	Diluted	$	0.96	$	(0.11)	$	0.85

The debt discount associated with the 2008 Notes will be amortized over periods that end on the scheduled maturity date and result in effective interest rates of approximately 8.25%. The effective interest rate for the 2004 Notes was approximately 6.75%. For the fiscal years ended April 1, 2011 ended April 2, 2010, and March 27, 2009 interest expense was $7,171, $7,281 and $7,925, based on the contractual coupon rates, while debt discount amortization was $8,543, $7,948, and $11,044, respectively.

The principal balances, unamortized discounts and net carrying amounts of the liability components and the equity components for the Company's 2008 Notes as of April 1, 2011 and April 2, 2010 are as follows:

	Liability Component						Equity Component
(in thousands)	Principal		Unamortized		Net Carrying		Carrying Amount
2008 Notes	Balance		Discount		Amount		Pretax^(a)
April 1, 2011	$	230,000	$	(34,357)	$	195,643	$	55,636
April 2, 2010	$	230,000	$	(42,899)	$	187,101	$	55,636

The Company maintains an asset-based revolving line of credit (the “RLOC”), which matures on September 30, 2012. In accordance with ASC 470-10, Debt – Overall, borrowings under the RLOC are classified as a current liability. The Credit Agreement permits maximum borrowings of up to $200.0 million, which may be increased to $250.0 million. Availability of borrowings (“Availability”) depends upon a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements less any outstanding letters of credit. Borrowings under the RLOC bear interest at the bank's prime rate plus an applicable margin based on a fixed charge coverage ratio, or at LIBOR plus an applicable margin based on a fixed charge coverage ratio. Additionally, the RLOC bears interest at a fixed rate of 0.25% for any unused portion of the facility.

Under the RLOC, the Company and its subsidiaries are subject to certain covenants, including but not limited to, limitations on (i) paying dividends and repurchasing the Company's common stock, (ii) selling or transferring assets, (iii) making certain investments including acquisitions, (iv) incurring additional indebtedness and liens, and (v) annual capital expenditures. However, these covenants may not apply if the Company maintains sufficient Availability under the credit facility.

Borrowings under the RLOC are anticipated to fund future requirements for working capital, capital expenditures, acquisitions, repurchases of the Company's common stock, and the issuance of letters of credit.

There were no outstanding borrowings under the RLOC as of April 1, 2011 and April 2, 2010. After reducing Availability for outstanding borrowings and letter of credit commitments, the Company has sufficient assets based on eligible accounts receivable and inventory to borrow an additional $200.0 million (excluding the additional increase of $50.0 million) under the RLOC. Average daily borrowings during fiscal years 2011 and 2010 were $3.8 million and $44.2 million, respectively. A hypothetical 1% increase/decrease in prevailing interest rates as of April 1, 2011, would result in a corresponding increase/decrease in interest expense of less than $0.1 million. The average daily interest rate, excluding debt issuance costs and unused line fees, for the fiscal years ended April 1, 2011, April 2, 2010, and March 27, 2009, was 2.37%, 4.02%, and 4.00%, respectively.

Changes in interest rates affect interest payments under the Company's variable rate RLOC. During fiscal year 2008, the Company entered into an interest rate swap agreement which matured on February 19, 2010. The Company did not extend or enter into a new swap agreement, and as such, this agreement has expired. The purpose of the swap agreement was to hedge the variable interest rate of its RLOC, as such, the interest rate swap effectively fixed the interest rate on a portion of the revolving line of credit to 2.70%, plus an applicable margin as determined by the RLOC.

The interest rate swap, with a notional amount of $50.0 million, was designated as a cash flow hedge, therefore, changes in fair value were recognized in Accumulated other comprehensive income in the accompanying Consolidated Balance Sheets. Under the terms of the interest rate swap agreement, the Company made monthly payments based on the fixed rate and received interest payments based on 1-month LIBOR. The changes in market value of these financial instruments were highly correlated with changes in market value of the hedged item both at inception and over the lives of the agreements. Amounts received or paid under these interest rate swap agreements were recorded as reductions or additions to interest expense.

The interest rate swap was disclosed in the Consolidated Statements of Equity as follows:

Derivatives in Cash Flow Hedging Relationships	Impact Recognized in OCI from Derivative - Effective Portion
(in thousands)	April 1, 2011		April 2, 2010		March 27, 2009
Interest rate swap, net of tax	$	-	$	552	$	(351)

The Company leases certain computer hardware and office equipment at an aggregate annual rental of approximately $762. The equipment is capitalized at its fair market value, which approximates the present value of the future minimum lease payments, and is amortized over the useful life of the asset. The following table is a schedule by year of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of April 1, 2011.

Fiscal Year:
	2012		$	761
	2013			19
	2014			-
		Total minimum lease payments		780
		Less: amount representing interest		26
		Present value of net minimum lease payments	$	754