Amgen 2010 Annual Report Download - page 149

2011 and 2013 Convertible Notes
In 2006, we issued $2.5 billion principal amount of convertible notes (the “2011 Convertible Notes”) at par that
became due and were repaid in February, 2011. While outstanding, the 2011 Convertible Notes were convertible
into shares of our common stock at a conversion rate of 12.5247 shares per $1,000 principal amount of notes, which
represents a conversion price of approximately $79.84 per share.
Concurrent with the issuance of the 2011 Convertible Notes, we issued $2.5 billion principal amount of
convertible notes due in February 2013 (the “2013 Convertible Notes”) at par. The 2013 Convertible Notes may be
converted into shares of our common stock based on an initial conversion rate of 12.5814 shares per $1,000
principal amount of notes, which represents a conversion price of approximately $79.48 per share. This conversion
rate will be adjusted if we make specified types of distributions or enter into certain other transactions with respect
to our common stock. The 2013 Convertible Notes may only be converted: (i) during any calendar quarter if the
closing price of our common stock exceeds 130% of the conversion price per share during a defined 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 maturity date. Upon conversion, 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 conversion 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) cash, shares of our common
stock, or a combination of cash and shares of our common stock, at our option, to the extent the conversion value
exceeds the principal amount of the note (the “excess conversion value”). In addition, upon a change in control, as
defined, the holders may require us to purchase for cash all or a portion of their notes for the principal amount of the
notes plus accrued interest. The 2011 Convertible Notes had similar conversion terms. As of December 31, 2010,
the 2011 Convertible Notes and the 2013 Convertible Notes were not convertible.
Concurrent with the issuance of the 2013 Convertible Notes, we purchased a convertible note hedge. The
convertible note hedge allows us to receive shares of our common stock and/or cash from the counterparty to the
transaction equal to the amounts of common stock and/or cash related to the excess conversion value that we would
issue and/or pay to the holders of the 2013 Convertible Notes upon conversion. This convertible note hedge will
terminate at the earlier of the maturity of the 2013 Convertible Notes or the first day none of these notes remain
outstanding due to conversion or otherwise. We also purchased convertible note hedges with similar terms in
connection with the issuance of the 2011 Convertible Notes which terminated when these notes were repaid.
Also concurrent with the issuance of the 2011 Convertible Notes and 2013 Convertible Notes, we sold warrants
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 respective 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.
Because the convertible note hedges and warrants can be settled at our option 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 contracts are
classified in “Stockholders’ equity” and are indexed to our common stock, they are not accounted for as derivatives.
As required for cash settleable convertible notes, the debt and equity components of the 2011 Convertible
Notes and 2013 Convertible Notes were bifurcated and accounted for separately. While the notes are outstanding,
their discounted carrying values resulting from the bifurcation are accreted back to their principal amounts over
periods that end on the scheduled maturity dates, resulting in the recognition of non-cash interest expense. After
F-27
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)