| Debt | 4.
Debt On June 17, 2022, the Company entered into a five-year $700,000 revolving credit facility (the “2022 Revolving Credit
Facility”). The 2022 Revolving Credit Facility contains an option to increase the revolving credit facility by $200,000. The Company’s
outstanding borrowings under the 2022 Revolving Credit Facility were $156,500 and $120,000 on January 26, 2024 and July 28, 2023, respectively. As of January 26, 2024, the Company had $32,466 of standby letters of credit, which reduce the Company’s borrowing availability under the 2022 Revolving Credit Facility (see Note 10 for more information on the Company’s standby
letters of credit). As of January 26, 2024, the Company had $511,034 in borrowing availability under the 2022 Revolving Credit Facility. In accordance with the 2022 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either
at (1) the Term Secured Overnight Financing Rate (SOFR) or (2) a base rate equal to the greater of (i) the prime rate, (ii) a rate that is 0.5%
in excess of the Federal Funds Rate, and (iii) Term SOFR plus 1.0%, in each case, plus an applicable margin based on the Company’s
consolidated total leverage ratio. At January 26, 2024, the weighted average interest rate on the Company’s outstanding borrowings on the 2022 Revolving Credit Facility was 6.96%. The 2022 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated
total senior secured leverage ratio and a minimum consolidated interest coverage ratio. At January 26, 2024, the Company was in compliance with all financial covenants under the 2022 Revolving Credit Facility. The 2022 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the
amount of shares the Company is permitted to repurchase. Under the 2022 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2022 Revolving Credit Facility plus the Company’s cash
and cash equivalents on hand is at least $100,000 (the “Cash Availability”), the Company may declare and pay cash dividends on shares of
its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total senior secured leverage ratio is 2.75 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000
in any fiscal year if the Company’s consolidated total leverage ratio is greater than 2.75 to 1.00 at the time the dividend or
repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, Cash Availability is at least $100,000, the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends
declared in the fourth quarter of the immediately preceding fiscal year multiplied by four. Convertible Senior Notes On June 18, 2021, the Company completed a $300,000 principal aggregate amount private offering of 0.625% convertible
Senior Notes due in 2026 (the “Notes”). The Notes are governed by the terms of an indenture (the “Indenture”) between the Company and U.S. Bank National Association as the Trustee. The Notes will mature on June 15, 2026, unless earlier converted, repurchased or redeemed. The Notes bear cash interest at an annual rate of 0.625%, payable semi-annually in arrears on June 15 and December 15 of each
year. The Notes are unsecured obligations and do not contain any financial or operating covenants or restrictions on the payments of
dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. In an event of default, the principal amount of, and all accrued and unpaid interest on, all of the notes then
outstanding will immediately become due and payable. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an event of default relating to certain failures by the Company to comply with certain
reporting covenants in the Indenture will consist exclusively of the right of the noteholders to receive special interest on the Notes for up to 180
calendar days during which such event of default has occurred and is continuing, at a specified rate for the first 90 days of 0.25% per
annum, and thereafter at a rate of 0.50% per annum, on the principal amount of the Notes. The initial conversion rate applicable to the Notes was 5.3153 shares of the Company’s common stock per $1,000 principal amount of
Notes, which represented an initial conversion price of approximately $188.14 per share of the Company’s common stock, a premium of 25.0% over the last reported sale price of $150.51
per share on June 15, 2021, the date on which the Notes were priced. The conversion rate is subject to customary adjustments upon the occurrence of certain events, including the payment of dividends to holders of the Company’s common stock. As of
January 26, 2024, the conversion rate, as adjusted, was 6.1071 shares of the Company’s common stock per $1,000 principal amount of Notes. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” occur, then the conversion
rate will, in certain circumstances, be increased for a specified period of time. Net proceeds from the Notes offering were $291,125, after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses. The Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt
issuance costs. The following table includes the outstanding principal amount and carrying value of the Notes as of the dates indicated:
January 26, 2024 July 28, 2023
Liability component Principal
$
300,000 $ 300,000
Less: Debt issuance costs (1)
4,297 5,171
Net carrying amount
$
295,703 $ 294,829
(1)
Debt issuance costs are amortized to interest expense
using the effective interest method over the expected life of the Notes. The effective rate of the Notes over their expected life is 1.23%. The following is a summary of interest expense for the Notes for specified periods:
Quarter Ended Six Months Ended
January 26, 2024
January 27, 2023
January 26, 2024
January 27, 2023
Coupon interest $ 474 $ 474
$
948
$
948
Amortization of issuance costs 438 431
874
862
Total interest expense $ 912 $ 905
$
1,822
$
1,810 During any calendar quarter commencing after September 30, 2021, in which the closing price of the Company’s common stock
exceeds 130% of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the quarter, holders may in the
quarter immediately following, convert all or a portion of their Notes. The holders of the Notes were not eligible to convert their Notes during the first six months of 2024 or during 2023, 2022 or 2021. When a conversion notice is received, the
Company has the option to pay or deliver the conversion amount entirely in cash or a combination of cash and shares of the Company’s common stock. Accordingly, as of January 26, 2024, the Company could not be required to settle the Notes and,
therefore, the Notes are classified as long-term debt. Convertible Note Hedge and Warrant Transactions In connection with the offering of the Notes, the Company entered into convertible note hedge transactions (the “Convertible
Note Hedge Transactions”) with certain of the initial purchasers of the Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”). Concurrently with the Company’s entry into the
Convertible Note Hedge Transactions, the Company also entered into separate, warrant transactions with the Hedge Counterparties collectively relating to the same number of shares of the Company’s common stock, which initially was approximately 1,600,000 shares, subject to customary anti-dilution adjustments, and for which the Company received proceeds that partially offset the cost of entering
into the Convertible Note Hedge Transactions (the “Warrant Transactions”). The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the
Company’s common stock that initially underlay the Notes and are expected generally to reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Notes.
The Warrant Transactions could have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. The strike price was initially $263.39 per share and is subject to certain adjustments under the terms of the Warrant Transactions. As of January 26, 2024, the strike price, as
adjusted, of the Warrant Transactions was $229.24 per share as a result of dividends declared since the Notes were issued. The portion of the net proceeds to the Company from the offering of the Notes that was used to pay the premium on the
Convertible Note Hedge Transactions, net of the proceeds to the Company from the Warrant Transactions, was approximately $30,310. The net
costs incurred in connection with the Convertible Note Hedge Transactions and Warrant Transactions were recorded as a reduction to additional paid-in capital in 2021. Because these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions
were recorded in shareholders’ equity, not accounted for as derivatives and are not remeasured each reporting period. |
