Amgen 2009 Annual Report Download - page 152

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
price of approximately $79.84 and $79.48 per share, respectively). These conversion rates will be adjusted if we
make specified types of distributions or enter into certain other transactions with respect to our common stock.
The 2011 Convertible Notes and 2013 Convertible Notes may only be converted: (i) during any calendar quarter
if the closing price of our common stock exceeds 130% of the respective conversion price per share during a de-
fined period at the end of the previous quarter, (ii) if we make specified distributions to holders of our common
stock or specified corporate transactions occur or (iii) one month prior to the respective maturity date. Upon con-
version, a holder would receive the conversion value equal to the conversion rate multiplied by the volume
weighted average price of our common stock during a specified period following the conversion date. The con-
version value will be paid in: (i) cash equal to the lesser of the principal amount of the note or the conversion
value, as defined, and (ii) to the extent the conversion value exceeds the principal amount of the note, shares of
our common stock, cash or a combination of common stock and cash, at our option (the “excess conversion
value”). As of December 31, 2009, these notes were not convertible. In addition, upon a change in control, as de-
fined, the holders may require us to purchase for cash all or a portion of their notes for 100% of the principal
amount of the notes plus accrued interest.
Concurrent with the issuance of the 2011 Convertible Notes and 2013 Convertible Notes, we purchased con-
vertible note hedges. The convertible note hedges allow us to receive shares of our common stock and/or cash
from the counterparties to the transactions equal to the amounts of common stock and/or cash related to the ex-
cess conversion value that we would issue and/or pay to the holders of the 2011 Convertible Notes and 2013
Convertible Notes upon conversion. These transactions will terminate at the earlier of the maturity dates of the
related notes or the first day none of the related notes remain outstanding due to conversion or otherwise. The
cost of the convertible note hedges aggregated approximately $1.5 billion.
Also concurrent with the issuance of the 2011 Convertible Notes and 2013 Convertible Notes, we sold war-
rants to acquire shares of our common stock at an exercise price of $107.90 per share. Pursuant to these
transactions, warrants for approximately 31.3 million shares of our common stock may be settled in May 2011
and warrants for approximately 31.5 million shares of our common stock may be settled in May 2013 (the
“settlement dates”). If the average price of our common stock during a defined period ending on or about the re-
spective settlement dates exceeds the exercise price of the warrants, the warrants will be net settled, at our option,
in cash or shares of our common stock. Proceeds received from the issuance of the warrants totaled approx-
imately $774 million.
Because we have the choice of settling the convertible note hedges and warrants in cash or shares of our
common stock, and these contracts meet all of the applicable criteria for equity classification under the applicable
accounting standards, 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 con-
tracts are classified in “Stockholders’ equity” and are indexed to our common stock, they are not accounted for as
derivatives.
Effective January 1, 2009, we adopted a new accounting standard that changed the method of accounting for
certain types of convertible debt and, as required by this new standard, we retrospectively applied this change in
accounting to all prior periods for which we had applicable outstanding convertible debt (see Note 2, “Change in
method of accounting for convertible debt instruments”). Under this method of accounting, the debt and equity
components of our convertible notes are bifurcated and accounted for separately. The equity components of our
convertible notes, including our 2011 Convertible Notes, 2013 Convertible Notes and 2032 Modified Convertible
Notes (discussed below), are included in “Common stock and additional paid-in capital” in the Consolidated
Balance Sheets, with a corresponding reduction in the carrying values of these convertible notes as of the date of
issuance or modification, as applicable. The reduced carrying values of our convertible notes are being accreted
back to their principal amounts through the recognition of non-cash interest expense. This results in recognizing
interest expense on these borrowings at effective rates approximating what we would have incurred had we is-
sued nonconvertible debt with otherwise similar terms.
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