Debt |
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Jul. 29, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt |
5. Debt
On June 17, 2022, the Company entered
into a five-year $700,000 revolving credit facility (the “2022 Revolving Credit Facility”) with substantially the same
terms and financial covenants as our previous amended $800,000 revolving
credit facility (the “2019 Revolving Credit Facility”), which it replaced. The 2022 Revolving Credit Facility also contains an option to increase the revolving credit facility by $200,000.
At July 29, 2022 and July 31, 2021, the Company had $130,000 and $85,000, respectively, in outstanding borrowings under the 2022 Revolving Credit Facility and 2019 Revolving Credit Facility.
At July 29, 2022, the Company had $31,896 of standby letters of credit, which reduce the Company’s borrowing availability under the 2022 Revolving Credit
Facility (see Note 15). At July 29, 2022, the Company had $538,104 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 Term SOFR or prime plus or a rate of
0.5% in excess of the Federal Funds Rate plus an applicable margin based on certain specified financial ratios. In accordance with the
2019 Revolving Credit Facility, outstanding borrowings bore interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios. At July 29, 2022, the weighted average interest rate on $130,000 of the Company’s outstanding borrowings was 3.49%. At July 30, 2021, the weighted average interest
rate on $85,000 of the Company’s outstanding borrowings was 3.18%.
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 July
29, 2022, the Company was in compliance with all debt 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”) which included the exercise in
full of the initial purchasers’ option to purchase up to an additional $25,000 principal amount
of the Notes. The Notes are governed by the terms of an 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, beginning on December 15, 2021.
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 for the payment of dividends to holders of the Company’s common stock. On July 29, 2022, the conversion rate, as adjusted, was 5.6020 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 2026 Notes offering
were $291,125, after deducting the
initial purchasers’ discounts and commissions and the Company’s offering fees and expenses.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount
of the liability component before the allocation of any issuance costs was calculated by measuring the fair value of a similar liability that does not have an associated exchangeable feature. The carrying amount of the equity component (before the
allocation of any issuance costs), representing the conversion option, which does not require separate accounting as a derivative as it meets a scope exception for certain contracts involving an entity’s own equity, was determined by deducting the
fair value of the liability component from the par value of the Notes.
Due to the Company’s adoption of new accounting
guidance for convertible instruments on July 31, 2021, the Company
no longer bifurcates the Notes into a liability and an equity component in the Company’s Consolidated Balance Sheets (see Note 2 under Recent Accounting Pronouncements Adopted for
additional information regarding the adoption of this new accounting guidance). Upon adoption of this new accounting guidance, 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 equity conversion feature that was recorded to equity, as well as the unamortized debt discount and amortization expense attributable to equity, have been derecognized. At July 29, 2022, the Notes are included in long-term debt on the Company’s Consolidated Balance Sheet.
The following table includes the outstanding principal amount and carrying value of the Notes as of the period
indicated:
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 the year ended July 29, 2022:
During any calendar quarter preceding 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 immediate quarter following, convert all of a portion of their Notes. The holders of the Notes were not eligible to convert their Notes during 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 July 29, 2022, the Company could not be required to settle the Notes in
cash 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 is 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 underlie 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. By default, the Warrant Transactions are net share settled and the Company has the option to settle in cash or shares. 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. On July 29, 2022, the strike price, as adjusted, of the Warrant Transactions was adjusted to $249.91 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 on the Company’s Consolidated Balance Sheet during 2021.
As these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions
were recorded in stockholders’ equity, not accounted for as derivatives and are not remeasured each reporting period.
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