Amgen 2007 Annual Report Download - page 151

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Own Stock,” the cost of the convertible note hedges and net proceeds from the sale of the warrants are classified
in stockholders’ equity in the Consolidated Balance Sheets. In addition, because both of these contracts are
classified in stockholders’ equity and are indexed to our own common stock, they are not accounted for as de-
rivatives under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
2032 Modified Convertible Notes
In 2002, we issued zero coupon, 30 year convertible notes (“2032 Convertible Notes”) with an aggregate
face amount of $4.0 billion ($1,000 face amount per note) and yield to maturity of 1.125%. The original issue
discount of $1.1 billion or $285.77 per note (prior to repurchase of a portion of the 2032 Convertible Notes dis-
cussed below) is being accreted and recognized as interest expense over the life of the 2032 Convertible Notes
(or the 2032 Modified Convertible Notes, as discussed below) using the effective interest method.
The holders of the 2032 Convertible Notes had the right to require us to repurchase all or a portion of their notes
on March 1, 2005. As a result of certain holders of the Convertible Notes exercising this March 1, 2005 put option, we
repurchased $1.6 billion aggregate principal amount of 2032 Convertible Notes for their then-accreted value of $1.2
billion in cash. Upon the repurchase of such 2032 Convertible Notes, a pro rata portion, $20 million, of the related debt
issuance costs was immediately charged to interest expense. We then made an aggregate cash payment of $22 million
to the remaining holders of the 2032 Convertible Notes. Concurrently, we amended the terms of the 2032 Convertible
Notes to add an additional put date in order to permit the remaining holders, at their option, to cause us to repurchase
the 2032 Convertible Notes on March 1, 2006 at the then-accreted value. Substantially all of the convertible note hold-
ers did not require us to repurchase such notes on the March 1, 2006 put date.
On May 6, 2005, we exchanged new zero-coupon senior convertible notes (the “2032 Modified Convertible
Notes”) and a cash payment of approximately $6 million for approximately 95% of the remaining 2032 Con-
vertible Notes then outstanding. Subsequently, we exchanged substantially all of the remaining outstanding 2032
Convertible Notes. The changes to the 2032 Convertible Notes outstanding as a result of these exchanges com-
bined with those made in March 2005 were accounted for as a debt modification. Accordingly, all cash paid to
the holders of the 2032 Modified Convertible Notes is being amortized to interest expense over the life of the
convertible notes using the effective interest method, and the costs incurred to modify the terms of the con-
vertible notes were expensed as incurred.
On March 2, 2007, as a result of holders of substantially all of our 2032 Modified Convertible Notes exercis-
ing their March 1, 2007 put option, we repurchased $2.3 billion aggregate principal amount of these convertible
notes for their then accreted value of $1.7 billion in cash, representing the majority of the then outstanding bal-
ance of these notes. Following the exercise of the March 1, 2007 put option, the remaining outstanding portion of
the 2032 Modified Convertible Notes, $80 million, was reclassified from the current portion of convertible notes
to non-current convertible notes as of December 31, 2006. Upon the repurchase of these notes, a pro rata portion,
$51 million, of deferred financing and related costs were immediately charged to interest expense.
Holders of 2032 Modified Convertible Notes may convert each of their notes based on a conversion rate of
8.8601 shares of common stock. The conversion price per share of the convertible notes as of any day will equal
the original issuance price plus the accrued original issue discount to that day, divided by the conversion rate or
$86.05 as of December 31, 2007. The 2032 Modified Convertible Notes can only be converted in certain circum-
stances. If converted, the 2032 Modified Convertible Notes will be settled for a “conversion value” equal to the
product of the conversion rate (8.8601 shares of Amgen common stock per note as of December 31, 2007) multi-
plied by the average closing price of our common stock during a specified period following the conversion date.
The conversion value is paid in: (i) cash equal to the lesser of the accreted value of the 2032 Modified Con-
vertible Notes at the conversion date or the conversion value and (ii) shares of common stock, if any, to the
extent the conversion value exceeds the accreted value. The conversion rate of the 2032 Modified Convertible
Notes will be adjusted for any cash dividend paid.
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